LOS ANGELES -- California plans Wednesday to sell the municipal market's largest taxable deal -- a $602 million issue -- to fund projects concerning housing, hazardous substance cleanup, and earthquake protection.

The sale marks California's first taxable general obligation bond sale. Bids are scheduled to be opened on Wednesday. Other municipal issuers -- such as New York City and the Puerto Rico Housing Finance Corp. -- have sold large long-term taxable issues in recent years, but California's proposed GO sale sets a record, according to Securities Data Co./Bond Buyer figures.

This week's sale is taxable because bond proceeds will benefit programs that provide financing for private housing or otherwise help private property. But interest on the bonds is exempt from California personal income taxes.

California last week sold $1.2 billion of tax-exempt GOs, at a true interest cost of 6.2959%, to an account led by Bank of America.

Depending on the maturity, the state's taxable bonds could be priced from 20 to 50 basis points above comparable U.S. Treasury securities, according to some market participants.

The bonds mature from 1992 to 2001 and are not subject to redemption before their stated maturities.

Appetite for the taxable bonds is expected from a board range of investors, including local cities and counties in California buying for their own portfolios. Individuals who buy high-quality taxable debt, such as mortgage-backed bonds, also are likely to be attracted by California's triple-A ratings and the bonds' noncallable feature. Certain institutions, such as insurance companies, also have shown interest in the issue, a California-based trader said.

Including the upcoming taxable sale, the state will have sold about $3 billion of GOs this year. It expects to sell at least another $1 billion before yearend.

This week's taxable sale -- and last week's deal -- had been postponed in the spring because state Treasurer Kathleen Brown feared the issues could spur a downgrade tied to California's budget troubles.

But state officials agreed in mid-July on revenue increases and spending cuts to erase a $14.3 billion deficit.

In response to that action, the rating agencies maintained their gilt-edged grades on California GOs. Moody's Investors Service rates them Aaa; Standard & Poor's Corp. and Fitch Investors Service Inc. rate them AAA.

In rating the taxable issue, Standard & Poor's said the state's outlook "remains negative for the intermediate term because of continued uncertainty over economic performance in this recessionary period," and the nonrecurring measures needed to address the budget gap. The agency said keeping the triple-A rating "assumes that state officials will implement timely action to prevent deficit budget operations during the course of the fiscal year."

A majority of this week's sale involves housing and homeless bond acts approved by state voters in 1988 and 1990.

A portion of the $277 million in proceeds from the 1988 act will be used for the California Housing Finance Agency's Home Purchase Assistance Program, which provides financial assistance to low-and moderate-income first-time home buyers through second-mortgage loans.

Other bond proceeds from the 1988 act -- and the $125 million in proceeds from the 1990 act -- will be used for various programs administered by the California Department of Housing and Community Development, including construction of low-income rental housing and emergency shelters for the homeless.

Another $150 million of Wednesday's issue will fund improvements to increase the earthquake resistance of multifamily housing structures that were built with unreinforced masonry, and also provide deferred payment loans for other housing rehabilitation.

Finally, $50 million of proceeds from the upcoming bond issue will finance cleanup of contaminated sites that threaten public health or the environment. Previuos bond issues under the state's Hazardous Substance Cleanup Bond Act of 1984 were sold on a tax-exempt basis because they were issued prior to stricter federal laws governing private-activity bonds, a spokeswoman for the treasurer said yesterday.

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