In the next three years, 94% of small and medium-size cities in California plan to use new financing sources, primarily municipal bonds, for capital projects' funding, a new survey says.

Only 6% of cities will be able to finance capital spending needs during the next three years entirely from existing revenues or cash on hand, according to the survey by Fieldman, Rolapp & Associates.

The survey of 83 cities was conducted in late October by the Irvine, Calif.-based independent advisory firm.

For the current fiscal year that began July 1,67% of the cities surveyed said they have increased their capital spending budget from the earlier fiscal year's plan, reflecting the state's improved economic outlook.

A total of 53% of respondents said the largest portion of their fiscal 1995 capital budget is earmarked for new projects, while 47% said the largest portion covers renovation and restoration projects.

Only seven of the responding cities have fiscal 1995 capital budgets greater than $20 million. Four cities plan to spend $11 million to $20 million, 18 cities said they will spend $6 million to $10 million, 32 cities will spend $1 million to $5 million, and 16 cities will spend less than $1 million.

"Many California cities have deferred major maintenance and new construction because of the prolonged recession," Lawrence G. Rolapp, president of Fieldman Rolapp, said in a statement. "Judging by the survey responses, the smaller cities are cautiously increasing their spending."

For the second year in a row, California's general fund generated a surplus, according to a preliminary accounting by state Controller Gray Davis.

For fiscal 1994, the state generated an $836 million operating surplus, reducing the state's accumulated budget deficit to $1.2 billion at the June 30 fiscal yearend.

"This is another indication that the economy is on the mend and the state is getting its financial house back in order," Davis said in a statement.

In fiscal 1994, California spent $836 million less than it received, with $40.15 billion in income and $39.32 billion in "outgo," the controller's office said. "During the year, the state spent $836 million less than it received."

California's general fund started fiscal 1994 with a negative fund balance, or deficit, of $2.04 billion, and ended the year with a negative fund balance of $1.21 billion.

In mid-November, Davis announced that a gradual improvement in the state's finances meant that it would not be necessary to pull the trigger on automatic across-the-board spending cuts. At that time, Davis said he expected the general fund cash condition of next June 30 -- the end of the current fiscal year -- to be healthier than was projected last July.

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