A Special Background Report On Trends in Industry And Finance
STATES MULL refinancing as a way to save cash, but a debt redo isn't for all.</br></br>STATES MULL refinancing as a way to save cash, but a debt redo isn't for all.</br></br>As interest rates slide, ailing states (29 face tax-revenue shortfalls) may try to refinance debt to save even a little. "It should help," says Standard & Poor's Hyman Grossman. But he cautions that rates may have to drop further to merit the step and even so, big budget gaps yawn. The National Governors' Association's Raymond Scheppach sees only "marginal" benefit but real risk in re-entering debt arenas: States may find their bond ratings have slipped.</br></br>As interest rates slide, ailing states (29 face tax-revenue shortfalls) may try to refinance debt to save even a little. "It should help," says Standard & Poor's Hyman Grossman. But he cautions that rates may have to drop further to merit the step and even so, big budget gaps yawn. The National Governors' Association's Raymond Scheppach sees only "marginal" benefit but real risk in re-entering debt arenas: States may find their bond ratings have slipped.</br></br>Another caveat: the "new math" ushered in by the 1986 Tax Reform Act allows only one refunding of a prior debt issue. "Before, anytime you had a decline of 2% or so, it made sense to refinance. That's no longer true," says William Fish, head of municipal research at Donaldson, Lufkin & Jenrette. Still, some states may be tempted to restructure debt, largely to free current debt service reserve funds, which can then be used as badly needed operating cash.</br></br>Another caveat: the "new math" ushered in by the 1986 Tax Reform Act allows only one refunding of a prior debt issue. "Before, anytime you had a decline of 2% or so, it made sense to refinance. That's no longer true," says William Fish, head of municipal research at Donaldson, Lufkin & Jenrette. Still, some states may be tempted to restructure debt, largely to free current debt service reserve funds, which can then be used as badly needed operating cash.</br></br>On S&P's CreditWatch list: California, Connecticut, Illinois, Maine, Michigan, Pennsylvania and Rhode Island.</br></br>On S&P's CreditWatch list: California, Connecticut, Illinois, Maine, Michigan, Pennsylvania and Rhode Island.</br></br>MOM'S STRATEGIES hold up well in the business world, offspring avow.</br></br>MOM'S STRATEGIES hold up well in the business world, offspring avow.