DALLAS — Houston today will issue $200 million of variable-rate combined utility revenue bonds to convert auction-rate securities and $80 million of tax and revenue anticipation notes today to bridge gaps in its revenue stream.

The revenue bonds will be taxable until the call dates of the bonds they take out Dec. 1, 2008, 2011, and 2012. The previous ARS were taxable because they represented a second refunding when Houston restructured its debt portfolio.

The new bonds take out the last of $1.4 billion of ARS held by the city's water and sewer utilities. In May, the city converted $249 million of utility ARS.

After this issue, Houston will still have about $500 million of the $1.9 billion of ARS it held at the beginning of the year. Conversion of $350 million of airport system and $150 million of convention ARS is pending.

The revenue bonds will carry new insurance from Financial Security Assurance Inc. to earn triple-A ratings. The auction-rate securities they take out were insured by Ambac Assurance Corp., which this month lost its triple-A ratings from Standard & Poor's and Fitch Ratings and is on watch list for a downgrade by Moody's Investors Service.

The 2008D revenue bonds carry underlying ratings of AA from Standard & Poor's, A1 from Moody's, and A-plus from Fitch.

The Trans will be priced competitively through the Grant Street Group, while the revenue bonds will be remarketed by Citi.

Houston deputy controller Jim Moncur said Citi was chosen based on the structure of the debt as variable rate demand obligations.

"It was a difficult process because the market kept changing on us. Between put bonds, VRDBs, and fixed rate, I think we changed our minds about two or three times," Moncur said. "With the structure we chose, we saw Citi as the best fit."

Coastal Securities and Morgan Keegan & Co. worked with the city as financial advisers.

Despite a flood of ARS conversions nationwide, the city is not worried about an oversupply of similar debt in the market.

"There seems to be a healthy appetite for the product," Moncur said.

The $80 million Tran issue is down from the $115 million issued last year, reflecting the city's relatively strong economy and revenue stream, Moncur said.

Although the energy sector remains Houston's specialty, the nation's fourth-largest city has diversified in recent years with increased transportation and shipping, health care, engineering, and other businesses.

Property tax base growth remains strong, according to Fitch analysts. The tax base grew by 11.7% in fiscal 2008, which is higher than the five-year 6.08% annualized average, to $122.8 billion, or $59,150 per capita.

Property and sales tax revenue growth remained strong in fiscal 2007, and the city ended fiscal 2007 with a general fund balance of $237 million, plus an additional $20 million in a rainy-day fund.

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