LOS ANGELES -- California emerged from its budget deadlock Tuesday night, paving the way for a planned pricing next Monday of a huge interim note sale and general obligation borrowings in the next few weeks.
Gov. Pete Wilson signed the $55.7 billion budget on Tuesday after lawmakers approved a rise in income tax for the state's wealthiest taxpayers in exchange for worker's compensation reform.
With the budget in hand, California plans Monday to price from $1.95 billion to $2 billion of interim notes to tide the state over until its regular revenue anticipation note deal is sold in early August.
California also expects in mid-to late August to sell two general obligation issues totaling about $1.8 billion, including $600 million on a taxable basis for housing, earthquake safety construction, and hazardous waste cleanup.
Kathleen Brown, the state treasurer, postponed the GO issues in May, citing concern the new issuance could trigger a rating downgrade because of the state's budget problems.
State leaders eliminated a record $14.3 billion deficit by levying $7.2 billion in higher taxes and fees, cutting spending by $5.1 billion, and making other transfers and accounting changes totaling $2 billion.
The fiscal 1992 budget, which began July 1, includes a $1.2 billion emergency reserve.
"They've taken major action," said Claire Cohen, executive managing director of governmental finance at Fitch Investors Service Inc. "It's good news that they've passed the budget."
She added, however, that some uncertainty remains, "depending on how good their revenue estimates turn out to be." California's actual general fund revenues in recent months fell far below forecasts made last year.
Rating agency officials said they now can scrutinize the budget, adding that they still lacked details yesterday because the plan was signed so late on Tuesday night.
Analyzing the budget "is foremost in our minds" since the state plans to come to market soon with various large debt issues, said George Leung, managing director and director of state ratings for Moody's Investors Service.
Moody's, Fitch, and Standard & Poor's Corp. all rate California GOs triple-A. In January, however, Standard & Poor's placed the state's debt on CreditWatch with negative implications because of the budget problems.
"We are clearly in an economic period that is fraught with difficulties...in California right now," Ms. Brown said yesterday. But, she said, she harbors "cautious optimism" that California can maintain its triple-A rating because the state has accomplished "more structural reform than we've seen in California for some time."
The rating agencies said they wanted prompt budget action, and they also called for structural reforms to address reoccurring deficits.
Gov. Wilson has said his budget includes such reforms, including an ambitious realignment plan that transfer $2.2 billion of mental health, public health, and some social service programs to counties, along with funding sources. The governor said realignment will give counties greater control over these programs and reduce the size of state government.
Gov. Wilson also received legislative approval for a five-year suspension of statutory cost of living increases for welfare and public assistance programs. In recent years these increases have outstripped the pace of state revenue growth. Rating agency officials have expressed support for some of these changes, and such long-term reforms often are needed to maintain a gilt-edged triple-A rating. Earlier this month, for example, Standard & Poor's lowered New Jersey's GO rating to AA-plus from AAA, partly on concern that the state balanced its budget with one-shot revenue measures.
California chose to boost revenues primarily with permanent and temporary sales tax increases that are expected to generate about $5 billion of new revenue in fiscal 1992.
State legislators approved a budget in June, but Gov. Wilson delayed signing the bill until the Legislature also approved the means to pay for it. About $2 billion of the deficit remained unfunded in recent weeks after Gov. Wilson and Republicans in the Assembly demanded worker's compensation reform in exchange for approving an income tax increase on the state's top earners.
The worker's compensation reform approved by legislators on Tuesday fell short of the governor's initial demands, but it will sharply limit stress claims during an employee's first six months on a job.
Legislators approved the income tax increase with the bare minimums required in both the Assembly and Senate.
Lehman Brothers is the book-running manager on the state's interim and regular note borrowings. The interim sale will be nonrated and will be paid off by proceeds from the regular Ran deal, which is expected to reach a record $5 billion.
California later this summer also is expected to proceed with various lease financings now that the budget is in place.
