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STATE OF CALIFORNIA BUDGET IMPASSE MAY AFFECT CERTAIN RATINGS

 STATE OF CALIFORNIA BUDGET IMPASSE MAY AFFECT CERTAIN RATINGS
 NEW YORK, Aug. 18 /PRNewswire/ -- Moody's has been asked by a number of subscribers and issuers about what impact the budget stalemate for the State of California will have on ratings for local governments. Of particular concern are ratings on cashflow borrowings, given the decision by many financial institutions to no longer honor the state's registered warrants, or "I.O.U.s," effectively cutting off the flow of state aid to local governments.
 To date, Moody's has assigned almost 200 short-term MIG1 ratings on tax and revenue anticipation notes issued by localities for the 1992-93 fiscal year. In most cases, the issuer either had presented very conservative projections incorporating proposed budget cuts or had alternate liquidity or other funds on hand available for interfund borrowing in the case of a cash shortfall in the general fund. However, most projections did not assume such prolonged delays in state revenues.
 While the delay in passing the state's budget has caused operational difficulties for many local governments, it is unlikely that these delays will affect long-term ratings. However, there may be a detrimental effect on short-term ratings, particularly if the impasse continues. Since payments to school districts and universities are given preference under the state constitution, the state's illiquidity will likely affect county operations most significantly.
 We will be reviewing the cashflows of those localities which are most dependent on state aid, such as counties, to determine what impact the delays have had on note security. If necessary, we may ask issuers for revised cashflows and, in some cases, may adjust note ratings to reflect reduced credit quality. If the budget is resolved quickly, we would expect few short-term rating changes as jurisdictions with MIG1 TRANs should be able to absorb some delays in cash receipts.
 In most cases, long-term ratings should not be affected by the short-term cashflow problems, however, the final program levels agreed upon in the budget negotiations could affect long-term credit quality. Once the budget is finalized, Moody's will meet with state and local officials to discuss its details and implementation. Shortly thereafter, we will publish a comment on the budget's impact on long- term credit quality of the various types of local governments which will be affected.
 -0- 8/18/92
 /CONTACT: David A. Brodsly, San Francisco, 415-274-1739, or Barbara J. Flickinger, New York, 212-553-7736, or George Leung, New York, 212-553-0342, all of Moody's Public Finance Department/ CO: ST: California IN: SU:


AH-LD -- NY079 -- 1144 08/18/92 17:58 EDT
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Date:Aug 18, 1992
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