LOS ANGELES - Recent economic weakness has not reduced either the volume or credit quality of redevelopment tax increment bond issuance, Standard & Poor's Corp. said this week.

In fact, "the pace of tax increment bond issuance nationwide appears to have increased over the past five years," the rating agency says in a Nov. 22 CreditWeek Municipal special report.

Standard & Poor's cautions that recent legislative changes, rather than economic trends, may currently pose the greatest uncertainty for credit quality of such financings.

The number of uninsured tax increment bonds rated by Standard & Poor's has grown to 124 in 11 states from 66 in three states only five years ago.

Furthermore, "most states have enacted legislation authorizing the issuance of tax increment bonds, and increasing numbers of states are issuing them," the agency says.

Such bonds, also known as tax allocation debt, are secured by property tax revenues generated by redevelopment efforts. The activity generally involves efforts to spark urban renewal in blighted areas.

Despite economic downturns in Some areas, most tax increment districts rated by Standard & Poor's have largely been unaffected because they "contain enough incremental taxable value to comfortably cover debt service," the report says.

"Unforeseen legislative changes, however, pose the greater problem for tax increment credit quality," the rating agency says.

Tax reform efforts in states such as Oregon and Michigan "have proved problematic for some tax increment districts," notes Standard & Poor's, which recently placed two local Michigan authorities on CreditWatch with negative implications because of the fallout from school finance reform in that state.

In Oregon, meanwhile, the Measure 5 tax-cutting initiative affects tax increment bonds because they must live within lower tax limits, based on state court decisions.

However, Standard & Poor's analysis shows that "tax increment bonds in Oregon carry enough debt service coverage and enough tax rate flexibility under the cap to avoid rating downgrades. Nevertheless, the initiative severely limits future tax levy growth."

The many tax increment districts in Colorado, meanwhile, "probably will not be affected by the [Amendment 11 initiative as it does not cut tax rates directly, but merely slows tax levy growth," the report says. "Over time, this may lead to slightly lower tax rates in some fast-growing jurisdictions if an overlapping tax entity had to lower its tax rate to keep its total levy constant."

Tax increment growth is particularly prevalent in the Midwest, and economic growth in the Rocky Mountain area "has been a boon" to tax increment districts in Idaho; Utah, and Colorado, Standard & Poor's notes.

California, however, continues to account for the bulk of tax increment bonding. California's major redevelopment reform legislation takes effect on Jan. 1, 1994, and "will certainly change many of the rules and regulations followed by local redevelopment agencies," the report says.

But the changes "should have little or no effect" on tax allocation bond ratings because they mainly pertain to "how California redevelopment agencies do business," the report says.

Tax appeals tied to the state's declining property values have posed some uncertainty, but "it appears that vacancy rates are beginning to decline and most of the major tax appeals are near settlement," the report says.

Regarding general national trends, "tax increment bond volume may decline next year due to issuance restrictions, slow assessed valuation growth, and fewer refundings," Standard & Poor's says. "However, many cities in California and elsewhere have no real bonding alternative for redevelopment purposes. This should help keep issuance alive."

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