LOS ANGELES -- California legislators approved a fiscal 1995 spending plan over the Independence Day weekend, avoiding a budget impasse that could have derailed the state's record $7 billion of short-term borrowings scheduled this month.
While the budget covers only the next 12 months, it is part of a two-year deficit spending plan that is dependent on the unprecedented borrowing to fund its cash management program.
The budget agreement calls for $40.7 billion of general fund spending, up from $38.5 billion in fiscal 1994. The total fiscal 1995 budget is $57.3 billion, which includes federal money and other special funds such as gasoline and cigarette taxes not funneled through the general fund.
The state Senate approved the budget agreement on Monday night on a vote of 27 to 11, the minimum two-thirds vote needed for passage. The Assembly, on a vote of 55 to 21, approved the budget on Saturday.
Yesterday, both houses were to begin work on about 10 trailer bills that implement the fiscal 1995 budget. The state's fiscal year started last Friday.
"We're moving to closure," Harold D. Palmer, assistant director of the California Department of Finance, said yesterday. "Once all the trailer bills are sent to [Gov. Pete Wilson], and have been reviewed, he will put pen to paper."
Although by the time Wilson signs the budget, the fiscal year probably will be five or six days old, the budget agreement came in time to prevent the issuance of IOUs, or registered warrants. The state was forced to issue IOUs to pay its bills during a 63-day budget stalemate in 1992.
With Wilson's signature all but assured, California finance officials are moving forward with plans for the short-term borrowings, scheduled in two financings one week apart, beginning two weeks from today. The borrowings were given a boost last Friday when both houses of the legislature approved a bill that would trigger automatic spending cuts if state revenues come up short during the next two years. Wilson signed the bill Friday night.
"Everything's on track from our perspective," said Anthony J. Taddey, a managing director for BA Securities, a wholly owned subsidiary of BankAmerica Corp. Taddey is the senior banker in charge of arranging credit support from an international consortium of banks for a portion of the warrant financing.
A total of $4 billion of revenue anticipation warrants will be sold via competitive bidding on July 20. Taddey said that the Raws probably would be sold in three series. Two series would be backed by the bank consortium collateral, and a third series would be sold without credit support.
A day after the Raw issue closes on July 26, $3 billion of revenue anticipation notes would be sold via negotiation. The Raws, which cross the fiscal year to mature in April 1996, will be "available to help secure the Ran issue," which matures June 24, 1995, Taddey said. The Ran issue will close Aug. 3.
By Friday, Taddey said he expects to have credit support commitments from 16 "very strong institutions from around the world," including banks in Japan, Canada, Germany, France, Switzerland, and England. He said the California Public Employees' Retirement System, known as CalPERS, "has also expressed an interest" in providing credit support. Discussions with CalPERS are ongoing, he said.
The Raw sale is being handled by the state controller's office and the Ran issue is being overseen by state Treasurer Kathleen Brown's office. Two separate preliminary official statements will be issued, with the Raw statements expected to be mailed by the weekend.
California's budget is balanced on the assumption that the federal government will come through with an additional $2.8 billion in fiscal 1996 to reimburse the state for the cost of serving illegal aliens. The budget assumes $800 million in the current fiscal year to pay for the services.
Because receipt of the federal funds is said to be an unlikely development by some observers, the lawmakers agreed to approve the so-called trigger bill to require across-the-board spending cuts if the new budget falls out of balance.
The bill provides assurance that any bankers that provide credit enhancement to the state would have a guarantee that the state would be able to repay its debts.
The author of the bill is Assemblyman Dean Andal, R-Stockton, who said the bill requires Controller Gray Davis to file a report on Nov. 15 on the status of the state's cash management program.
If cash is falling short of projections by more than 1%, or about $430 million, Wilson must present a plan to the legislature by Jan. 10 to correct the shortfall. The legislature has until Feb. 15 to pass a bill by a two-thirds vote that corrects the shortfall.
If lawmakers cannot reach agreement, the trigger mechanism "goes into place," making automatic across-the-board cuts in programs such as prisons, health and welfare, and higher education, Andal said.
Certain programs protected by the state constitution would be exempt from the automatic reductions, including state obligations on shortand long-term borrowings, and education funding.
Legislators "have a brief period of time to do their jobs" -- deciding through the political process what programs or expenditures to cut, Andal said. "My belief is they will not do their jobs, so the trigger mechanism is necessary."
In a statement, Brown said passage of the trigger legislation, although still "subject to legal validation, give the banks the assurances they need to loan the state $4 billion to pay our bills in the coming months."
Rating agency officials yesterday had few comments to make on the budget. The rating agencies are scheduled to meet next week with state officials to go over the shortterm borrowings.
"We will reserve comment until we have a chance to discuss the budget" with state officials at a July 13 meeting, said Richard Larkin, a Standard & Poor's Corp. director.
"We have not had a chance to review" the budget package, said Amy Doppelt, a senior vice president for Fitch Investors Service.
Moody's Investors Service and Fitch rate California general obligation bonds double-A; Standard & Poor's rates them A-plus.