ATLANTA -- Standard & Poor's Corp. yesterday revised its outlook on North Carolina's $591 million AAA-rated general obligation bonds to stable from negative, citing the state's efforts to diversify revenues and reestablish fiscal flexibility.

"In revising the outlook back to stable, S&P acknowledges that the prospects for any decline in the rating are removed," the agency said. But in taking its rating action, Standard & Poor's cautioned that its action "assumes a continuation of the fiscal discipline the state demonstrated through earlier economic slowdowns."

"It also considers [North Carolina's] changing demographic patterns and rapid growth in metropolitan areas," Standard & Poor's continued, "as well as needs in rural areas that necessitate broadened economic investment."

Standard & Poor's had placed North Carolina's GO debt on CreditWatch with negative implications in March 1990 after the national recession plunged the state into a fiscal crisis and officials estimated that revenue shortfalls in fiscal 1991 and 1992 could total $1.3 billion.

Although Standard & Poor's lifted the CreditWatch when it concluded in August 1990 that the state was facing its budget problems, it assigned a negative outlook pending further improvement.

Removing the negative outlook on the GOs, the agency yesterday praised North Carolina for its "consideration of new revenue sources targeted at new programs of spending."

In fiscal 1992, the agency said, revenues included $657.7 million in new taxes, led by a one-cent increase in the state's sales tax to 6%. In fiscal 1993, which began July 1, the revenue enhancements are expected to bring in an added $740 million.

Standard & Poor's also praised the state for reestablishing a reserve fund, which will be replenished to a level of 5% of revenues through mandatory allocation of annual surpluses. In addition, the agency commended North Carolina for planning a comprehensive financial-efficiency audit and improved consensus-based revenue estimating and forecasting techniques.

Finally, Standard & Poor's applauded North Carolina for deciding not to fund capital projects out of its operating budget. "This is in marked contrast to prior years, when the state used annual reversions of about $150 million for capital purposes." the agency said.

Moody's Investors Service continues to rate North Carolina's debt Aaa.

In legislative action, North Carolina's General Assembly met yesterday after breaking off talks on settling the 1993 budget last Thursday. Until the revised budget for the fiscal year beginning July 1 is completed, the state will rely on an $8.16 billion 1993 continuation budget approved last year as part of a two-year biennial budget.

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