LOS ANGELES -- An improving cash position has reduced the likelihood that California will need to make automatic spending cuts to protect investors who bought $4 billion of short-term obligations last July.

The nonpartisan state legislative analyst's office predicted this week that there will be a net $526 million improvement in the state's cash-flow position next June 30, when the current fiscal year ends.

If the forecast is correct, the state almost certainly will not need to employ for this fiscal year a so-called trigger mechanism that requires across-the-board general fund spending cuts if cash shortfalls develop beyond a certain benchmark.

The trigger is part of a new law enacted in July that established a fiscal monitoring and adjustment process to ensure the state will have sufficient cash to repay $4 billion of revenue anticipation warrants that mature in April 1996. The law was demanded by a bank consortium that provided credit enhancement for the RAWs.

The law requires state controller Gray Davis, with input from the legislative analysts office, to determine by Nov. 15 whether he expects the general fund's anticipated cash position to worsen by more than $430 million by fiscal yearend,

On Tuesday, legislative analyst Elizabeth G. Hill, wrote an eight-page letter to Davis revealing that the state's fiscal 1996 yearend cash-flow position is likely to be even better than predicted in July.

The disclosure is the clearest indication so far that Davis will put "pull the trigger," launching a lengthy process in which the governor and legislature would try to work together to eliminate the cash deterioration. If they failed at the task, the director of finance would be required to make automatic spending cuts to address the shortfall.

If the $526 million improvement in the state's cash position "were to hold -- and the controller were to adopt these numbers -- then the trigger would not be pulled," Dan Rabovsky, principal analyst for the legislative analyst's office, said yesterday.

Controller Davis finds the legislative analyst office's report "encouraging, but I don't think anybody is going around popping champagne corks," Davis spokesman Edd Fong said yesterday. "The state still has a lot of financial problems.

"But if the legislative analyst office's report is accurate, it means the state will be able to avoid a round of excruciating budget cuts this year," Fong said. "We are reviewing the legislative analyst's report and conducting an independent analysis which we will present to the governor on Nov. 15."

"It very much looks like the trigger won't be pulled," Kevin Eckery, a spokesman for Gov. Pete Wilson, said yesterday.

"We're down on spending, up on revenue -- and things are looking up," Eckery said. He credited the positive development to efforts last summer by the legislature and the governor to create "a responsible budget with conservative revenue and spending estimates."

The legislative analyst office's report "'indicates that there will not be the need to implement the trigger legislation" in the current fiscal year, said Bob Feyer, a partner with Orrick, Herrington & Sutcliffe, special counsel for the July RAW sale, and the state's general obligation bond counsel.

But, Feyer said, the fiscal 1995 budget is part of a two-year spending plan, and the trigger mechanism could be put into place in fiscal 1996 if conditions deteriorate.

"This is good hews for the current fiscal year," Feyer said. It "suggests that the flood of red ink has been stanched, and that the state's finances are getting back onto a sounder footing."

But the state fell into "a multi-billion-dollar hole" in the three-year recession, "and it is going to take a long time to dig our way out of it," he added.

For fiscal 1996, state budget preparations "will require difficult choices and actions by the legislature and the governor," Feyer said.

In the short-term, "revenues look like they are better than projected and expenditures lower than projected," Feyer said.

"The bad news is that the federal funds that were a large part of the budget package look like they are not coming in anything close to the numbers that the [Wilson] Administration had hoped for," Feyer said. "That is a definite warning signal for next year."

According to the legislative analyst's office, the fiscal 1995 budget assumed that Congress would provide the state with $763 million of additional federal funds to offset the state's cost for illegal immigrants. However, Congress provided only $33.5 million of requested funds, Rabovsky said.

"Essentially, the loss of federal funds is pretty much offset by two factors," Rabovsky added. "One is a moderation in case-load growth in health and welfare programs. The other is a slight improvement in revenue outlook."

The $526 million cash position expected at yearend refers to the amount of borrowable resources to be available then, "not the general fund's own cash" at that time, Rabovsky said.

Finance officials said last July when the RAWs were sold that the state would have $4.09 billion of unused borrowable resources on hand next June 30. If the amount of borrowable resources declines by more than $430 million -- in this case, below $3.66 billion -- the trigger is pulled.

However, if the $526 million cash position does not change "we would be substantially distant from the trigger" figure of $3.66 billion, Rabovsky said.

The legislative analyst office is continuing to examine several issues that could affect the state's cash position, Rabovsky said. These include the October revenue report. available by mid-month, which will provide further information about revenue trends.

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