LOS ANGELES - The worst may be over for California, but the state's general obligation bonds could be stuck near single-A trading levels for months to come, according to J.P. Morgan Securities Inc.

A stagnant economy and flaws in the state's fiscal 1994 budget get the blame. "We see little potential for near-term improvement in the state's economic or fiscal performance," the firm said in its latest "Municipal market monitor."

Accordingly, "we feel that the trend towards single-A levels for California GOs may continue for the balance of 1993 and possibly beyond," says the report, which was prepared by Irene M. Walsh, a vice president of municipal bond research at J.P. Morgan.

But the report concludes that "the true ~crisis' in California financial operations appears to have passed."

Investors worried about further rating downgrades or IOU episodes "should be comforted by recent developments," including the fact that three rating agencies confirmed their GO assessments following budget adoption on June 30, the report says.

Furthermore, "the state's cash-flow borrowing plan appears to provide sufficient resources to meet disbursements plus some margin for budgetary error," the report says.

The biggest risk for bondholders now is if current trends - weak economic performance, structural fiscal problems, and rising debt ratios - "become the fundamental characteristics that define California credit for the future, " the report says.

Walsh said the state has made some progress in its fiscal planning, particularly regarding economic assumptions that "may be sufficiently negative to capture further erosion in the California economy if the elusive ~bottoming out' has not yet occurred."

She added, however, that California's revenue forecast still is "subject to considerable risk over and above that presented by economic events."

The report also cites concern about California's plan for addressing a $2.7 billion deficit over the next 18 months.

"In our opinion, the deficit carryover plan is flawed in two important respects" by understating the true deficit and trying to extinguish it in such a short period, Walsh wrote.

Part of the problem, according to the report, is the off-budget education spending crafted to accommodate a complex constitutional funding guarantee for schools.

"The process - determining how much the Constitution requires be spent, deciding to spend more, and then calling the difference between these two figures a ~loan' against future appropriations - has all the hallmarks of deficit spending," the report says.

In addition, there could be profound implications for all public entities in California as the state and localities move closer to a major restructuring of the way services are provided and funded, the report says.

The report's historical yield-spread analysis of a California GO maturing in 2010, matched against a Delphis Hanover A-rated GO index, shows the California bond improving on a relative basis earlier this year, then trading off a bit in recent months.

The trend toward single-A levels may continue for several months "based on our analysis of the state's credit prospects," the report says.

Municipal analysts in recent months have expressed varying opinions about the state's creditworthiness, and the rating agencies remain split. Moody's Investors Service and Fitch Investors Service rate California GOs double-A; Standard & Poor's rates them A-plus.

Joseph Rosenblum, director of municipal credit research at Sanford C. Bernstein & Co., said yesterday that "I can't say that I disagree with [the J.P. Morgan report] about a stagnant economy in the near term. " Based on long-run prospects for California GOs, however, "we still see them as double-A" quality.

The recent spending agreement "certainly was not a perfect budget" but it did address some problems, Rosenblum said, adding "I still think the big issue is local" governments. Some of them may be "a ticking time bomb that could haunt the state," he said.

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