Underwriters, traders, and issuers said yesterday that New Jersey bond issuance has slowed to a trickle, and they worry that volume will keep falling next year.

The market participants cited a number of reasons for the decline in volume, including rising interest rates, pressure on local officials to reduce property taxes, and efforts by Gov. Christine Todd Whitman to downsize government.

"There is a scarcity of New Jersey paper," said Steve Harris, an executive vice president for trading and underwriting with Golden, Harris Capital Group Inc. in West Orange, N.J. "There have been some local deals in the $2 million to $8 million range. But there have certainly been no large negotiated deals, and competitive deals have been scarce."

The raw data support Harris' market outlook. Last December, New Jersey-based bond issuers sold 73 issues totaling $1.92 billion. So far this month, municipalities in New Jersey have sold 15 issues totaling $137 million, according to Securities Data Co., a New Jersey-based bond information service.

Market participants fear that such low numbers will continue into the new year.

"Issuers are taking it slowly, reflecting a national trend toward conservatism," said John Glidden, an underwriter in the public finance department at E.A. Moos & Co. in Summit, N.J.

Glidden said issuers seeking to finance projects are having a hard time convincing taxpayers that infrastructure improvements are needed.

In New Jersey, voters have turned down a number of bond referendums to upgrade local schools, Glidden said. The recent Republican landslide in the congressional elections also shows that voters are unwilling to support tax increases.

"The volume has to decrease in 1995," Harris said. "You can't raise taxes to meet interest costs that [the market] says you have to pay, so you can't come to market."

Harris cited a $5.5 million New Jersey Economic Development Authority issue proposed in July. Following legal wrangling over the deal's structure, interest rates rose, boosting the cost of issuance significantly. As a result, in November the authority decided to postpone the issue, Harris said.

"The net interest cost to the issuer rose 125 basis points," said Harris, whose firm was selected to underwrite the transaction. "The issuer had to put the deal on hold."

For the state's part, a spokeswoman in the Senate Majority Office confirmed that there is a move afoot from the governor's office to the legislature to streamline both operating budgets and capital expenditures.

"There's been an effort to reduce the amount of bonding," said Rae Hutton, director of communications for the Senate Majority Office. "The legislature is working with the governor in the downsizing."

Local issuers also are seeking to streamline operations, said Jack Kraft, bond counsel to a number of issuers around the state. Elected officials worry that local voters will be angered about any increase in property taxes, so they are deferring projects "to keep the budgets as tight as possible," Kraft said.

"There's a recognition that interest rates are on the rise," he said. "Issuers that have started projects are renewing bond anticipation notes rather than issuing long-term bonds in an increasing interest rate environment."

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