LOS ANGELES -- California tentatively plans to sell up to $500 million of general obligation bonds on Oct. 30, amid renewed concern that budget problems could eventually harm the state's triple-A credit standing.

A spokeswoman for the state treasurer confirmed yesterday that California is considering a GO sale ranging from $400 million to $500 million, but she stressed that no formal announcement has been made and plans remain subject to change.

In a new report, Sanford C. Bernstein & Co. this week said California GO bonds merit a double-A rating, primarily because recent demographic and population changes are undermining the state's creditworthiness.

State leaders averted a possible downgrade last July by reaching agreement on various tax increases and spending cuts to close a $14.3 billion budget gap.

But the 18-page Bernstein report predicts the rating agencies in 1992 or 1993 will downgrade California GOs to double-A "as it becomes clear that despite the successful closure of its fiscal 1992 budget gap, the state faces continued problems."

Not all market participants agree with the Bernstein assessment, however, citing a belief that California implemented budget reforms with far more bite than other states.

"We think that the budget fix was a good one," said Jerome Jacobs, vice president of the Vanguard Group of Investment Companies and portfolio manager of Vanguard's long-term and high-yield municipal bond funds.

Mr. Jacobs said the state should be positioned to retain its triple-A rating, despite weakness in California's economy.

Nevertheless, state officials conceded in recent weeks that California is facing further shortfalls. Kathleen Brown, the state treasurer, cautioned earlier this month that California's economy is weaker than had been expected when the state budget was enacted in July.

State revenues fell $344 million below expectations for July, August, and September, according to figurs compiled by the California Department of Finance.

Rating agencies continue to monitor the state's fiscal health.

"We have some serious concerns about the new revenue shortfalls," said Richrd Larkin, managing director of Standard & Poor's Corp. Mr. Larkin, who had not seen the Bernstein report, said, "We haven't yet come to the same conclusion they have, but we are watching the situation closely."

In affirming its AAA rating last August, Standard & Poor's noted that the outlook for California GOs remains negative because of continued economic uncertainty and the potential for future budget deficits resulting from one-time measures adopted for 1992.

Moody's Investors Service and Fitch Investors Service Inc. also rate California GOs triple-A.

"We've been made aware of a potential problem developing" with revenue shortfalls, said James Dearborn, a senior analyst of state ratings at Moody's. "We're looking for appropriate and prompt action to deal with that problem."

Joseph Rosenblum, a nine-year veteran of Moody's and currently director of municipal research at Bernstein, wrote the report on California's GO bonds.

Mr. Rosenblum cited above-average population growth and demographic changes as primary reasons for the credit erosion.

The state's rapid population growth, 25.7% from 1980 to 1990, is boosting infrastructure demand and borrowing needs, the report said. Furthermore, much of the population growth is occurring among lower-income groups, a trend that increases social program costs and strains state finances, the report adds.

California also faces limited ability to solve its fiscal problems because of legislative restraints and "an increasing awareness that tax increases and high housing costs are eroding California's economic competitiveness," the report says.

In light of its credit assessment, the Bernstein report concludes that "it is prudent to reduce one's exposure to the state of California and related credits," such as those relying on state lease payments.

"Clearly it depends on the yield, but our general approach is to go slow," Mr. Rosenblum said in an interview. The Bernstein report predicts that the yield spread between California GOs and other triple-A bonds could "widen by at least 20 basis points," although responses by the governor and legislators to the state's problems will influence actual yield adjustments.

The Bernstein report also says that California's localities are afflicted by the same circumstances affecting the state's credit position. Accordingly, only 20% of the firm's California fund is directly exposed to municipal credits.

By contrast, Vanguard's national long-term and high-yield municipal bond funds currently include "extremely heavy weightings" of bonds from California-based issuers Mr. Jacobs said.

Vanguard is "very bullish" on California local and state credits in general because they trade near national market levels, rather than at the premium they usually command, Mr. Jacobs said.

In a report on California counties this summer, Moody's confirmed most of its outstanding ratings, saying that prudent management and modest debt levels produced a relatively stable credit outlook.

As bond calls accelerate next year and paper from California issuers becomes more scarce. Mr. Jacobs predicts prices on municipal bonds in the state "will improve quite a bit."

Vanguard's strategy revolves around a "total return play [and] we're pretty comfortable with that bet," Mr. Jacobs said. The state's GO bonds also could benefit because "we think the whole sector will move up."

Mr. Jacobs said his firm believed earlier this year that California GO bonds were vulnerable to a downgrade, particularly because the speed and extent of the state's economic decline proved surprising.

But "we're in the camp that the state made some dramatic steps" to face its problems and protect its credit standing, Mr. Jacobs said.

California's proposed sale on Oct. 30 would fund various projects. The calendar for that week already features other sizable competitive transactions, including a total of $180 million in water and waste-water system bonds from the East Bay Municipal Utility District in California and a $271.7 million GO sale scheduled by Georgia.

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