UPDATE 1-NY agency calls for unified muni ratings

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NEW YORK, March 31 (Reuters) - New York state's Dormitory Authority, the third largest U.S. municipal bond issuer last year, on Monday backed a California-led drive to harmonize municipal and corporate bond ratings.

California Treasurer Bill Lockyer and other state officials argue that municipal bonds are often rated much lower than corporate bonds with equivalent default risk, raising borrowing costs for taxpayers.

"There is no reason that tax-exempt municipal bonds, with their historically low rate of default, should be rated more conservatively than corporate bonds," the Dormitory Authority's executive director, David Brown, said in a statement.

"Such artificially low ratings result in steeper borrowing fees for state and municipal governments, which ultimately cost taxpayers billions."

Credit agencies have historically used a different rating scale for the $2.6 trillion U.S. municipal bond market to allow investors to better compare the relative riskiness of tens of thousands of tax-exempt bond issuers.

Moody's Investors Service and Fitch Ratings have said they would take steps to address issuer concerns, but Standard & Poor's stands behind its present system.

Standard & Poor's has said that municipal investors widely understand its scales and that municipal bonds are already rated higher than corporate bonds, with 99 percent of all munis considered investment grade. (Reporting by Anastasija Johnson; Editing by Leslie Adler)