So far this year, the volume of state general obligation tax exempt financing, at $17.6 billion, has been extremely heavy. However, 33 percent, or $5.9 billion, of this financing has been the refunding of older outstanding debt with new issues carrying lower interest rates.

Recently, Prescott Ball and Turben Inc. released a study concerning credit rating changes during the past year of state general obligation debt. Included in the study were not only PB&T's changes, but also those of the major rating services -- Moody's and Standard and Poor's. Prescott had 12 changes, Moody's six and S&P nine.

Interestingly enough, in looking at these changes, one might say "the worm has turned." In the early 1980s, during the recession years, the Midwest and the northeastern sections of the United States were particularly hard hit, and many states within these regions had their credit ratings downgraded.

Faced with a recession and loss of revenue, plus a reduction in federal funds during the Reagan administration, many states initiated plans to rebuild cash reserves. This was an effort to cushion their general funds against further economic downturns.

Because of successful efforts during the past three years, credit ratings for certain states within the midwestern and northwestern regions have been upgraded by these services. The states upgraded by PB&T are Illinois, Maine, Michigan, Ohio, Pennsylvania, Delaware and Vermont. Moody's upgrades in these regions are Connecticut, Michigan, New York and Pennsylvania, while S&P's raised Michigan, New Hampshire, Pennsylvania and Rhode Island.

On the other hand, with the decline in the price of oil, minerals and other commodities, several states in the southwestern and western regions have fallen on hard times. Consequently, the following states were downgraded by one or more of the three services; Louisiana, Texas and Montana. Louisiana was a unanimous downgrade. Other downgrades were Kentucky and West Virginia (coal). PB&T upgraded Washington, while S&P's upgraded Georgia.

The Treasury will auction, in $1,000 denominations, a four-year note Tuesday and seven-year note Wednesday. They should return 7.3 percent and 7.55 percent respectively.

Lebherz has 27 years' experience in fixed-income investments.