With the wreckage of 2008 in the rearview mirror, issuers will start boosting the supply of muni debt this week as investors continue their flight to quality.

In the first full week of the year, more than $3.1 billion is expected to go to market, according to Thomson Reuters, with $10.6 billion still in the day-to-day mode from last year.

New York's Empire State Development Authority tops all issuers with $1.1 billion of personal income tax bonds in both tax-exempt and taxable modes.

With ratings of triple-A from Standard & Poor's and AA-minus from Fitch Ratings, the Empire State bonds should find a receptive market, said Jeffrey Timlin, portfolio manager for Sage Advisory Services.

"Bonds that are rated double-A and triple-A will find good demand," Timlin said. "But I think over the course of the year, you're going to see downgrades of A-credits and lower because of their inability to refinance."

Troubled 2008 ended in a rally amid tightening supply and portfolio balancing by investors seeking tax write-offs and safer positions in 2009, Timlin said.

"I think people are now refocusing on the markets," he said. "You're definitely going to see a pickup in supply early in the year, and I think you're going to see an increase in yields."

Munis closed out 2008 with a rally, recouping some value after significant losses for much of the second half of the year.

Yields on high-quality paper are now back to levels seen before the Lehman Brothers Holdings Inc. bankruptcy, according to Municipal Market Data.

New-issue volume fell nearly 26% in December and was down 9% for the year, a level not seen since 2006. A total of 10,635 new issues came to market in 2008, with a combined par value of the $390.6 billion.

The ESDC deal comes to market through negotiation with Citi as book-runner. Morgan Stanley, Merrill Lynch & Co., and Loop Capital Markets LLC will co-senior manage.

While the final structure of the bonds has not been determined, the authority's finance officers said they are aware of investor preference for shorter maturities.

On the competitive calendar, the state of Washington dominates with a total of $400 million of general obligation bonds bearing attractive credits of AA-plus from Standard & Poor's, Aa1 from Moody's Investors Service, and AA from Fitch.

The bonds will go up for bid Wednesday. The first issue, $130 million of fuel tax-backed GOs, will be priced at 7:30 a.m. Pacific Standard Time, followed by $270 million various purpose GOs at 8 a.m.

Seattle-Northwest Securities Corp. is financial adviser on the deal.

The fiscally challenged Golden State returns to the negotiated market with $350 million of revenue bonds for the California Department of Water Resources. JPMorgan is lead manager.

The Virginia College Building Authority is expected to issue $309 million of educational facilities revenue bonds through Citi as senior manager and Public Resources Advisory Group Inc. as financial adviser. The bonds carry ratings of AA from Standard & Poor's and are awaiting ratings from Moody's and Fitch.

Other large issues include $201 million of triple-A rated revenue bonds from the Florida Water Pollution Control Financing Corp. through Citi. Proceeds will be used to provide low-interest loans to local governments for eligible pollution control projects, such as wastewater, storm water, and other water-quality improvement projects.

A draft preliminary official statement indicates that the Florida debt will have serial and term bonds. The corporation sold $50 million in June 2001 and $100 million in June 2003.

In Delaware, New Castle County will issue $111 million of GOs with Merrill Lynch as senior manager. The bonds are rated triple-A by Standard & Poor's and Fitch.

In Texas, the Spring Independent School District will carry Permanent School Fund backing in its scheduled sale of $94.1 million this week in a negotiated deal led by Morgan Keegan & Co. First Southwest Co., Loop Capital Markets, Merrill Lynch, Morgan Stanley, Siebert Brandford Shank & Co., and Southwest Securities are co-managers.

The bonds will carry triple-A ratings through their backing by the Texas PSF.

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