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MOODY'S LOWERS STATE OF NEW YORK APPROPRIATION-BACKED DEBT RATING TO Baa1 FROM A; ALSO PLACES GENERAL OBLIGATIONS UNDER REVIEW

MOODY'S LOWERS STATE OF NEW YORK APPROPRIATION-BACKED DEBT RATING TO
 Baa1 FROM A; ALSO PLACES GENERAL OBLIGATIONS UNDER REVIEW
 NEW YORK, Jan. 6 /PRNewswire/ -- Moody's Investors Service today lowered from "A" to "Baa1" the ratings on certain appropriation-backed debt of the state of New York and its agencies, citing mounting budget deficits, inability of the legislature and the administration to reach timely agreement on deficit reduction plans for the current fiscal year, and protracted weakness in the economy. At this time, the more secure general obligation, state-guaranteed, and New York State Local Government Assistance Corporation (LGAC) bonds continue to be rated "A", but are placed under review for possible downgrade over the coming months.
 Today's action recognizes that, with less than three months remaining in the fiscal year ending March 31, the state has failed to close a budget gap identified at mid-year, budget balancing options are extremely limited, and for the fourth consecutive year a sizeable carryover deficit funding will be necessary. The state's inability to exercise budgetary control and address the mid-year deficit on a timely basis has direct implications for its appropriation-backed debt.
 A later review of the general obligation and state-guaranteed debt rating, as well as further review of appropriation-backed bond ratings, will consider the timeliness of the budget enacted for fiscal 1993 and its success at restoring structural balance.
 Approximately two-thirds of the state's tax-supported debt is affected by today's rating actions. Appropriation-backed debt has been the fastest growing component of state debt in recent years, rising from approximately $10.8 billion in outstanding bonds as of March 31, 1990, to the $14.2 billion now outstanding, not including $2.4 billion in LGAC debt. Today's rating changes affect New York State certificates of participation and debt payable subject to annual state legislative appropriation issued by the Dormitory Authority, the Urban Development Corporation, the Metropolitan Transportation Authority, the Housing Finance Agency, the Medical Care Facilities Finance Agency, the Thruway Authority, and the Triborough Bridge and Tunnel Authority. Revenue bonds of these agencies not supported by state appropriations are not affected. A complete list follows at the end of this release.
 The only state appropriation-backed obligations not affected, those of LGAC, continue to be rated "A", reflecting the stronger security these obligations are provided by the 1 percent sales tax funding mechanism. LGAC bonds are serviced by the discrete cash flow source of the 1 percent sales tax. The LGAC provisions offer a strong incentive to appropriate LGAC debt service, as they require such appropriations in order to make the balance of the 1 percent sales tax available to the state for operating purposes.
 The bond ratings of local governments in New York State are not directly


affected by today's rating action, but the impact of the state's fiscal stringency on local government bond ratings will be assessed on a case-by-case basis.
 As the state enters the final quarter of the fiscal year ending March 31, 1992, it appears unable to close a substantial deficit. The fiscal 1992 deficit was first identified in the state's mid-year financial update, released on Oct. 30. At that time, the projected gap of $689 million represented about 6 percent of the $11.4 billion in budgeted cash disbursements remaining for the balance of the fiscal year. The estimate of the gap has now grown to $875 million, or nearly 18 percent of remaining disbursements, and may yet worsen in light of the continuing economic uncertainty. Over the last two months, the legislature and the administration have been in contentious debate over plans to close the 1992 gap, as well as alternative plans to address together the 1992 gap and a projected 1993 gap, now expected to reach some $5 billion. These efforts have failed to produce a consensus on either plan. With the introduction of the executive budget due later this month, attention will soon shift to fiscal 1993.
 The time consumed in these failed negotiations has foreclosed most options for generating significant current year savings, and references to a 15 month plan are no longer realistic. At best, policies agreed to now for recurring savings could begin yielding significant results only in fiscal 1993. As a result, a fourth year of deficit borrowing and continued growth in the state's accumulated deficit can be expected this year. The accumulated general fund deficit stood at approximately $6.2 billion as of March 31, 1991, almost 23 percent of general fund revenues, having grown from $3.4 billion at the end of fiscal 1988. The $6.2 billion masks an additional $800 million in accumulated deficit that was converted to long-term debt in the form of Local Government Assistance Corporation (LGAC) bonds during fiscal 1991.
 In part, the state's current inability to solve its mid-year problem is a legacy of this year's delayed budget. Because the budget was not finalized until the end of July, it has been more difficult for the legislature and the administration to confront a mid-year problem identified only three months later. And because budget delays have become an ingrained practice rather than an exceptional event, failure to break out of this pattern of delay contributes to annual deficits that cannot be addressed promptly.
 Moody's expects intense debate over budget issues during the next few months. The broad realignment of spending and revenue needed will be a difficult and highly charged process. As budget compromises of the last two years have largely exhausted one-shot resources and marginal solutions, debate must center on fundamental questions regarding the role of state government. Further rating actions will rest on the timeliness of the ultimate budget compromise as well as the degree to which it provides for structural budget balance without relying on non- recurring actions.
 Ratings on the following issues have been lowered to "Baa1" from "A", except for the New York State Medical Care Facilities Finance Agency Secured Hospital Revenue Bonds, which have been lowered to "Baa" from "Baa1."
 Albany County South Mall Lease Rental
 Binghampton State Office Building Lease Rental
 Metropolitan Transportation Authority:
 Commuter Facilities Service Contract
 Transit Facilities Service Contract
 New York State Certificates of Participation:
 Dated 1/1/86, 3/1/87, 9/15/87, 12/1/87, 3/15/88, 12/1/88,
 10/1/89 and 1/1/91
 City University of New York (John Jay College of Criminal Justice
 Project) Dated 8/15/86
 New York State Dormitory Authority
 City University Consolidated Revenue
 City University Refunding Issue 1986 (rating based on long-term
 security factors expected to be in place following mandatory
 exchange for Series 1986B bonds on 8/15/94)
 City University Refunding Issue 1988A (rating based on long-term
 security factors expected to be in place following mandatory
 exchange for Series 1988A bonds on 7/1/90)
 City University Refunding Issue 1988B (rating based on long-term
 security factors expected to be in place following mandatory
 exchange for Series 1988B bonds on 7/1/93)
 City University Refunding Issue 1988C (rating based on long-term
 security factors expected to be in place following mandatory
 exchange for Series 1988C bonds on 7/1/95)
 City University Refunding Issue 1988D (rating based on long-term
 security factors expected to be in place following mandatory
 exchange for Series 1988D bonds on 7/1/95)
 City University Senior College Revenue
 City University Senior College Revenue Refunding Series 1984
 (rating based on long-term security factors expected to be in
 place following mandatory exchange for Series T bonds on
 6/15/92)
 Department of Health of the State of New York
 Department of Health of the State of New York, Series A
 Department of Health of the State of New York, Veterans Home
 Revenue
 Veterans Home Revenue Bonds, 1991 Issue Library Facilities
 Service Contract Bonds
 Nassau County Community College-State Appropriation
 North Country Community College, Series A
 State University (1964 Resolution)
 State University (1964 Resolution) Refunding Series 1973
 State University Educational Facilities Revenue
 Upstate Community Colleges, Series A-D, 1987, 1988A, 1989A, 1990A,
 1991A and 1991B issues
 City University System, Consolidated Second General Resolution
 Revenue
 State University Athletic Facility Revenue
 Fashion Institute of Technology, Series 1990
 Department of Education Revenue Bonds, Series 1991
 Triborough Bridge & Tunnel Authority - New York City
 Convention Center Project
 Maturities after 1/1/98
 New York State Medical Care Facilities Finance Agency:
 Mental Health Services Facilities Improvement Revenue
 Secured Hospital Revenue Bonds (rating revised to "Baa" from
 "Baa1")
 New York State Urban Development Corporation
 Correctional Facilities Revenue
 Project Revenue (Center for Industrial Innovation)
 Project Revenue (Columbia University Center for Computers,
 Micro-electronics & Telecommunications)
 Project Revenue (Cornell Center for Theory & Simulation in Science
 & Engineering)
 Project Revenue (Syracuse University Center for Science &
 Technology)
 South Mall Facility
 Project Revenue (New York University Center for Neural Science
 Grant, Series '91)
 Project Revenue (University of Rochester, Center for Electro-Optic
 Imaging Grant, Series '91)
 Project Revenue (Alfred Technology Resources, Inc., Industrial
 Incubator Facility, Series '91)
 Project Revenue (Alfred Technology Resources Facility Grant,
 Series '90)
 Project Revenue (Clarkson Center Loan)
 Project Revenue (Clarkson Center Grant)
 Project Revenue (Onondaga Convention Center)
 State Facilities Revenue, Series 1991
 New York State Housing Finance Agency
 State University Construction
 Service Contract Obligation Revenue
 New York State Thruway Authority
 Local Highway and Bridge Contract Bonds
 Outstanding Debt Affected by Rating Revisions:
 $14,225,000,000
 The following ratings have been reviewed and confirmed:
 Confirmed at A/VMIG 1:
 New York Job Development Authority
 Special Purpose Floating/Fixed Rate Series 1984 A-1-27 &
 B-1-8 (expiring upon conversion to fixed rate)
 Unit Price Demand Adjustable Special Purpose Bonds
 Variable Rate Daily Demand Special Purpose, Series 1987
 A-1-13 & 1987 B-1-9 (SBPA-Fuji Bank, Ltd.; VMIG expires
 at conversion, or earlier termination of liquidity facility)
 Variable Rate Daily Demand Special Purpose Series 1988 A-1-21,
 1988 B-1-9 (SBPA-Fuji Bank, Ltd.; expires at conversion, or
 earlier termination of liquidity facility)
 Variable Rate Demand Special Purpose Bonds, 1990 Series A
 (SBPA-The Mitsubishi Bank, Ltd.) (VMIG expires 10/27/93, at
 conversion or earlier termination of SBPA)
 Commercial Paper (P-1 confirmed)
 Confirmed at A:
 New York Job Development Authority, State Guaranteed Issues (fixed
 rate)
 Local Government Assistance Corporation
 New York State Thruway Authority, Guaranteed Issues
 Port Authority of New York & New Jersey
 Commuter Car (Guaranteed by State of New York)
 The following short-term ratings are confirmed at this time:
 State of New York Tax and Revenue Anticipation Notes, Series 1991:
 MIG 2
 State of New York Commercial Paper: P-1
 -0- 1/6/91
 /CONTACT: George Leung, 212-553-0342, Steven Hochman, 212-553-0338, or Renee Boicourt, 212-553-7162, all of Moody's/ CO: ST: New York IN: SU: RTG PS -- NY073 -- 7095 01/06/92 18:06 EST
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