WASHINGTON -- Lease financings for cultural, parks, and recreational projects carry greater risks than other lease financings, Standard & Poor's Corp. said in a CreditWeek Municipal article published yesterday.

But the number of actual defaults on such financings is likely to be limited, the agency said, given the "market caution" about lease financings stirred up by the default of the Richmond, Calif., Unified School District and the near-default of Brevard County. Fla.

The market wariness in the wake of those recent events "keeps many of the more questionable recreation-related lease projects from getting beyond preliminary discussions," the article says.

Such projects are risky because they do not always produce projected revenues. And, even if the financings are backed by a promise to appropriate lease payments, they usually are not essential and thus may not take priority among the many competing demands for a municipality's general funds, the article says.

"In times of fiscal stress, cultural and recreation funding is more likely to be reduced than other, more critical services such as health and welfare, public safety, and corrections," the article says.

"For municipalities, the impact -- both operationally and politically -- of not appropriating funds for lease payments on recreation project financings, and the risk of losing ownership or use of golf courses, parks and pools, usually are much less severe than losing use of jails or schools." the article says.

One such project for an ice arena in Lysander, N.Y., is in default and being paid from reserve funds because it did not produce expected revenues and the city has decided not to appropriate the lease payments out of its general fund, even though that is required under the lease agreement, the agency said.

As a result, the Lysander lease project has earned the agency's only junk bond rating for such issues, being downgraded to CCC in May from a BBB-minus. The article's author, agency vice president Roy Chun, said it is "a clear example of why S&P is wary of projects touted as being profit-generating and self-supporting."

The Lysander default is reminiscent of a default on a 1978 certificates of participation issue for the Minnesota Zoo Monorail, a project that was also intended to be self-supporting but did not produce sufficient revenues to repay the certificates. In that case, however, the state had no legal obligation to make up the shortfalls, Strandard & Poor's said.

Along with zoos and ice-skating rinks, Standard & Poor's says it puts into its risky category such projects as golf courses, municipal swimming pools, community centers, parks and land acquisitions, performing arts centers, and sports stadiums.

Standard & Poor's says the agency typically grades lease financings for cultural and recreation projects far below a municipality's general obligation rating and substantially below its general lease rating.

For example, the 1991 lease financing for the St. Louis stadium received an A-plus rating, even though the state is rated AAA and its other top-priority lease financings have earned AA ratings.

"The project was planned with the hope of attracting a National Football League expansion team, but no commitments have been made and the league is not scheduled to make its decision until October 1993," the agency said. "Without a professional team, the financial feasibility and public support of the project are questionable, thus increasing the risk of nonappropriation."

Lease payments for the St. Louis stadium project engendered significant opposition from homeless groups in 1991, causing an initial decision not to appropriate a lease payment in the state legislature, which was later reversed.

Standard & Poor's said that for the agency to feel "comfortable" rating such financings in the future, it is likely to require unanimous or near-unanimous support from an issuer's legislature. The agency also may spurn issues that are unpopular in the community or that have been rejected as general obligation bond issues.

Also particularly suspect, according to the agency, are projects that are designed to attract new attention to a community. "For example, a lease financing to build a performing arts center in a suburban community with the goal of making the community into a regional cultural center would have above-average nonappropriation risk that would be reflected in the rating."

Conversely, a community where recreation or culture is a prime asset may be viewed more favorably if it proposes to finance other such purchases with lease issues, the agency said.

Standard & Poor's suggests that issuers enhance the creditworthiness of some projects using techniques such as asset transfers. lease pooling overcollateralization, and revenue pledges.

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