LOS ANGELES -- California hopes on Monday to price an interim note issue of $1 billion or more to tide the state over until its regular note deal in August, but the sale hinged on having a budget in place by late Wednesday night.
By late afternoon Wednesday, however, state politicians still had not agreed on about $2 billion of new taxes needed to balance the state budget. It appeared possible that the remaining budget bills would be passed in time for Gov. Pete Wilson to sign the overall budget package by midnight Wednesday.
Hall Geiogue, assistant state treasurer, said the interim borrowing cannot proceed until the governor signs the budget. If Gov. Wilson signed it by midnight Wednesday, Mr. Geiogue said the state will price the deal on Monday.
The state's $55.7 billion budget has been passed by the Legislature, but Gov. Wilson earlier this week declined to sigh it unless legislators also approve the means to pay for it.
By midweek, the main dispute centered in the Assembly, where Democrats balked at a Senate plan to impose a 2% utility tax on Telephone, cable television, and water bills. Assembly Democrats would prefer a higher income tax rate on California's top earners, including individuals making more than $100,000 a year and couples reporting annual incomes of $200,000 or more.
Gov. Wilson said he might agree to the higher income tax, but he also was seeking legislative support for a workers' compensation reform bill that would limit payments for job-related stress.
The standoff had not been resolved by late afternoon Wednesday.
Rating agency officials have been closely monitoring California's budget process. They have said previously that they want the state's record $14.3 billion deficit closed in a timely fashion.
"We have been willing to wait" on any rating decision as long as there are signs of progress, said Steven Zimmerman, a senior vice president of Standard & Poor's Corp. in San Francisco. "We'd like to make our decision based on the budget," not on the fact state leaders cannot reach a consensus.
Since California appeared close to a final budget agreement at midweek, rating agency officials seemed willing to wait a few more days to see the process play out. Once the budget is in place, Mr. Zimmerman noted his agency can then assess whether it meets the criteria for the triple-A rating.
Standard & Poor's rates Califronia general obligation bonds AAA, but in January the agency placed the debt on CreditWatch with negative implications.
Moody's Investors Service and Fitch Investors Service Inc. also rate the state's GOs triple-A.
The interim notes, tentatively planned for sale Monday, will mature in about 40 days, and will be paid off by proceeds from the state's regular revenue anticipation note issue, Mr. Geiogue said.
California had planned an interim note issue of as much as $3 billion earlier this week, primarily to capture as many rollover buyers as possible from maturing note issues, Mr. Geiogue noted. The state had hope to attracts as many ivestors as possible to the interim notes and then roll those dollars into the regular RAN.
But once the budget was delayed, state officials decided to downsize the interim borrowing because many of the rollover dollars would already be invested in other instruments by next Monday, Mr. Geiogue said. After a pricing call with investment bankers on Wednesday, however, Mr. Geiogue noted there might be enough investors "still hiding in the bushes" to justify increasing the sale to some amount exceeding $1 billion.
Lehman Brothers, which is running the books on California's regular RAN sale, is also lead manager on the nonrated interim borrowing.
Mr. Geioloue also said this week that California's regular RAN issue is shaping up as a $5 billion deal, which would make it the largest tax-exempt note issue ever. Tentative plans call for selling $4 billion of fixed-rate notes and $1 billion of variable-rate notes.
The variable-rate maturities would permit the state to take advantage of attractive daily and weekly interest rates, Mr. Geiogue said, although he noted market conditions could change by August and alter the state's plans.