WASHINGTON - Most states suffered what could be called an embarrassment of riches last year when it came to the private-activity bond volume cap.

An unusually large number of states, 31, reported having plenty of volume cap authority to go around in 1992, according to a survey by The Bond Buyer.

But that was only because Congress, midway through the year, eliminated the authority to issue mortgage revenue bonds and small-issue industrial development bonds, two of the biggest users of the volume cap in most states.

The situation was most clearly evident in the large amount allocated as "carryforward," bond authority that is left over at the end of a given year and distributed for use in future years. Carryforward allocations at the end of 1992 totaled $5.24 billion, a sharp increase from $3.49 billion at the end of 1990, the last time The Bond Buyer survey was conducted.

The total of private-activity bond authority subject to the cap in 1992 was $14.6 billion. The volume cap law permit each state to allocate $50 per capita or $150 million each year, whichever is greater. In previous years, about half the states reported being satisfied with their cap amount, and nearly all of those were at the $150 million level.

The unusual state of affairs in 1992 created two big beneficiaries: issuers of student loan bonds, and issuers of bonds for exempt facilities, such as hazardous waste or sewage treatment plants.

In previous years, those two uses tended to trail mortgage bonds and IDBs in the amount that states were willing to allocate to them. But in 1992 exempt facilities soaked up $3.29 billion in volume cap authority, up from $1.45 billion in 1990, and student loans absorbed about $1.06 billion, compared with $349 million in 1990.

The people making the allocations are not happy. Typical was the reaction of Luther Miller, director of the Maryland Energy Financing Administration.

"When you consider the fact that for half a year we couldn't issue mortgage bonds or IDBs, under the circumstances I would say we had enough cap. But the circumstances were horrible," said Miller, whose state used less than half its 1992 allotment of $243 million.

"It's like asking, if a man had both his legs cut off, was the shoe store adequate? Sure it was," Miller said.

In Minnesota, as well, last year "was very atypical" said David Johnson, a budget officer for the state's Department of Finance. "In a normal year there is more of a demand for money for housing." Minnesota failed to use about 21% of its $217.6 million cap last year.

David Markovchick, director of business development for the Finance Authority of Maine, called 1992 "a very slow year. We did have more than enough to go around, largely because of the sunset." The state used just $65 million out of a total of $150 million for the year.

Frustration Sets in

Markovchick and many other state officials said they are getting frustrated with the on-again, off-again nature of the mortgage bond and IDB exemptions.

"It's been very difficult to operate an effective program with its coming and going and then being gone," Markovchick said.

President Clinton has proposed making the mortgage bond and IDB exemptions permanent, and the proposals are included in the House version of his budget and tax package. The Senate, however, has proposed renewing the two exemptions only through June 30, 1994.

Manufacturers in Virginia lost out in 1992 because the state generally waits until late in the year to allocate volume cap authority for their projects, said Charles Gravatt, financial assistance coordinator for the state's Division of Community Development.

"There was a lot of lost opportunity there," said Gravatt. Out of Virginia's $314.3 million cap last year, only $2.63 million went to IDB projects. By contrast, $125 million in IDBs were issued in Virginia in 1990.

The elimination of the IDB exemption was keenly felt in Iowa as well. "With the June 30 cutoff we had several manufacturing deals that couldn't make it, and also an agricultural authority that couldn't close their deal," said Janet Pressey, program administrator for the Iowa Finance Authority.

In Colorado, "A few relinquished" their allocations because they could not complete their deals by June 30, said an official there who requested anonymity.

In some states, demand was slow even before June 30 because of the aftereffects of the 1991 recession. "Because of the uncertainty in the economy, we just couldn't allocate," said one state official who asked not to be identified.

Many state officials complained they had difficulty even distributing carryforward allocations. Oklahoma was one example.

"We had to call people who were able to use carryforward and encourage them to do so," said James C. Joseph, the state's bond adviser. Oklahoma had $67.18 million left over to distribute in carryforward allocations out of a total 1992 cap of $158.8 million.

In Massachusetts as well, "The hardest decision last year was where to park the carryforward," said Chris Alberti director of debt finance for the Massachusetts Executive Office for Administration and Finance. The state carried forward $135.2 million out of its $299.8 million 1992 cap.

Part of the problem is that in past years most states gave a large amount of carryforward authority to state housing agencies for mortgage bonds. That changed in 1992 because of the mortgage bond sunset: A few states gambled that Congress would eventually renew the bonds' exemption and make it retroactive, but most decided to wait. In Massachusetts, for example, Alberti divided up the $135.2 million in carryforward authority among student loans, multifamily housing, and exempt facilities.

Massachusetts also illustrates what a good year it was for issuers of bonds for exempt facilities, like solid waste or water treatment plants, and for student loans.

Exempt facilities, in particular, have usually had trouble in many states obtaining volume cap allocations. For one thing, they often must compete with mortgage bond and IDB programs. In addition, exempt facilities projects tend to be extremely large, and just a few could soak up most of a state's volume cap authority.

Last year, that was not as much of a problem. In California, "we wound up filling a lot of the backlog needs for exempt facilities," said Mary Kittleson, executive director of the California Debt Limit Allocation Committee.

Exempt Facilities

Out of California's 1992 cap of $1.519 billion, nearly $700 million went to exempt facilities, for the construction of four solid-waste disposal facilities and a gas utility plant. Two years ago, California allocated less than $100 million to exempt facilities.

in the second half of 1992, utilities in Nevada received allocations that normally would have gone to mortgage bonds, an official there said. Out of its total cap for the year of $150 million, Nevada allocated $95 million to exempt facilities, and only $8 million to mortgage bonds. In 1990, mortgage bonds received $50 million and exempt facilities $49 million.

The expiration of the mortgage bond and IDB exemptions has been a boon to student loan issuers in a number of states. In South Carolina, for example, "We always have a student loan [authority] that is very hungry for allocation," said Donna Williams, assistant executive director for the state's Budget and Control Board.

Out of South Carolina's total 1992 cap of $178 million, the authority allocated $49 million to student loans for use that year and another $21.6 million in carryforward allocations. Most of the rest of the cap was distributed to exempt facilities.

Exempt facilities easily filled the void left by mortgage bonds and IDBs in Michigan last year, said Linda Rairigh, manager of the state's Local Audit and Finance Division.

A big need there is cogeneration facilities. "They need zillions, more than we could ever provide," she said. Last year Michigan gave exempt facilities $243.8 million, more than half the state's cap of $468.4 million.

Of course, there were still a few states last year that could not get enough. In Michigan, "we had more requests than we had available cap," Rairigh said.

Demand also outpaced supply last year in Missouri, where the state had requests for $341 million in cap authority, but had only $257.9 million to distribute. The $341 million figure is probably understated, said Mike Downing, manager for the state's finance programs.

"There probably would have been a lot more exempt facilities" requesting allocations, "but I think we talked them out of it," Downing said.

In New York, state agencies were in hot competition for the $437 million they are allowed to receive under the state's $902.9 million cap. Supply did not come close to meeting the $1.6 billion in requests for allocations, said Susan Toren, associate budget examiner for the New York State budget division's department of public authorities and capital finance.

Texas ended 1992 with $367 million of requests that were not filled, said Jeanne Talerico, program administrator for the state's private-activity bond pro ram. The state's cap in 1992 was 9867.45 million.

Utah "could have used another $100 million" above its 1992 cap amount of $150 million, said Keith Burnett, program specialist for the state's Department of Community and Economic Development.

Exempt facilities garnered $51 million in Utah last year, while student loans and IDBs were each allocated about $38 million, and mortgage bonds just $5 million. That left $17 million at the end of the year, which was carried forward for a hazardous waste facility project, Burnett said.

Burnett said the $17 million was available only because it had been turned down by multifamily housing developers who had received the allocation earlier in the year but had not been able to go forward with their projects.

For a few states, the overabundance of cap authority in 1992 was nothing out of the ordinary.

"There really has been an absence of demand" every year, said Brian Andrews, debt manager for the Alaska Department of Revenue. "Amounts that have been carried forward in the past have now lapsed" because they were not used within three years, as the law requires.

In Mississippi, "we don't ever use it up," said Bill Barry, director of financial resources for the state's Department of Economic and Community Development "We just don't get that much demand here."

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