With short-term interest rates low, Rhode Island decided not to offer tax anticipation notes directly to residents and small businesses at bank branches as it did last year. The state plans to market $350 million of Tans next week through a traditional retail and institutional sale.

In an identically sized deal last October, the state sold $25 million of its Tans directly to individual buyers at branches of Bank of America NA in $1,000 denominations. That deal priced to yield 2.2% with a 3.5% coupon on notes that matured in June.

"We're not doing it this time," said Tim Gray, spokesman for Treasurer Frank Caprio. "The experience last year was good, there was a lot of publicity leading up to it, but the rates were better [for the investor] .... This time we just don't expect the demand to be as great on the retail side."

Short-term interest rates have fallen as investors have increasingly sought out short-term debt while the supply has diminished. The Bond Buyer's one-year note index, which is derived from estimated yields for theoretical new one-year note issues from 10 state and local issuers, has hit historic lows this year. At 0.83%, last week's index had risen 11 basis points from the previous week but was still at its lowest level since 2003. By comparison, the July 30, 2008, index was at 1.59%.

"The rate's going to be less than one percent," Gray said. "It saves the state money but its not great for a small investor who wants to put $5,000 into it because the payout isn't as good as it was last time."

The day of the sale hadn't been decided on yet and would depend on market conditions, Gray said.

First Southwest Co. is financial adviser and Partridge Snow & Hahn LLP is bond counsel. Janney Montgomery Scott LLC and Citi will underwrite the deal.

Standard & Poor's rates the notes SP-1-plus, citing adequate debt service coverage by projected reserves, stronger coverage once enacted budget cuts are fully implemented, and the general creditworthiness of the state. The state expects to have 1.12 times debt service coverage ratio when the notes price but that will increase to 1.3 times coverage when the budget cuts are included, according to a ratings report.

State officials have also identified payments totalling more than $375 million that could be deferred in May and $240 million in June if available cash would be insufficient to repay the notes.

Standard & Poor's assigns its AA rating with negative outlook to Rhode Island's general obligation debt.

After closing a $431 million fiscal 2009 deficit that had opened up in the spring, the state enacted a $7.8 billion fiscal 2010 operating budget in June that closed a $553 million deficit.

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