LOS ANGELES -- One week into fiscal 1995, Gov. Pete Wilson of California signed a $57.5 billion all-funds state budget on Friday.

Adoption of the spending plan enables state finance officials to forge ahead with two short-term issues this month that total a record $7 billion.

The borrowings, scheduled one week apart beginning July 20, are part of an unprecedented cash management plan intended to finance a running deficit and smooth out cash flows over two fiscal years.

Following the state budget signing ceremony at the state capitol in Sacramento on Friday afternoon, key state finance officials left for New York City where yesterday they discussed the budget and borrowings with three rating agencies and investors.

Market observers expect to hear by week's end whether any of the rating agencies will take action on California's long-term general obligation bond ratings.

Moody's Investors Service and Fitch Investors Service rate California GO bonds double-A; Standard & Poor's rates them A-plus.

State officials hope Wall Street will react favorably to the state legislature's passage of a budget in a relatively timely fashion this year.

State Republican and Democratic leaders said the budget was a product of compromise. Its adoption, seven days after the fiscal year began July 1, was a sign that politicians wanted to avoid the consequences of a prolonged budget debate.

The lawmakers were able to avoid the embarrassment of the state's running out of cash and having to issue registered warrants to raise money to pay the bills. That's exactly what happened during a 63-day budget stalemate two years ago.

Lawmakers in the Assembly and Senate approved the main budget act early last week, and they finished work on so-called trailer bills to implement the fiscal plan late last week. Wilson delayed signing the main bill until Friday, when the entire budget package reached his desk.

In adopting the budget, Wilson used his line-item veto to delete a modest $22 million of spending approved by the legislature. He also deleted $26 million from the California department of transportation and $28 million from education -- money that Wilson said he might restore to the departments' budgets later.

Expenditures by the state's general fund in fiscal 1995 will total $40.9 billion, up 4.2% from the $39.3 billion spent in fiscal 1994. For fiscal 1996, the budget anticipates an 8.4% increase in general fund spending to $44.4 billion.

Among the budget's most controversial provisions is its inclusion of payments of $763 million this year and $2.8 billion in fiscal 1996 from the federal government to reimburse the state for services to illegal immigrants. Sources in the Clinton Administration and Congress have said it is doubtful the state will receive all of that money.

In a credit comment issued Friday, Moody's said that if the budget falls out of balance, "local government funding is likely to be a major target" to close state spending gaps.

Among local governments, counties "remain the most at risk" because they rely heavily on the state for revenues, and "because of the political vulnerability of the health and welfare programs, which make up a large share of their operations," Moody's said.

For the third year in a row, the legislature will transfer $2.6 billion of local property tax revenues to schools to help balance the state's budget.

Moody's said the fiscal 1995 budget "fine-tunes the property tax shift mechanism for counties to recapture funds lost due to a technical oversight in last year's budget legislation."

However, the report said the counties' loss of property tax revenues, although "not insignificant ... are not in themselves a likely threat to credit ratings. New risks, however, await the [fiscal 1996] state budget."

"We've been impressed with how the counties have managed to scramble through," said David Brodsly, a Moody's vice president who was a co-author of the credit comment. "This speaks strongly to county management as a general rule."

The budget anticipates no new taxes or tax increases, and includes $410 million of additional revenues expected from the favorable U.S. Supreme Court ruling last month in the Barclays multinational unitary taxation case.

The new budget keeps per pupil funding for kindergarten to 12th grades at existing levels of $4,217. While the plan offers small funding increases for higher education, fee increases of up to 10% probably will be required for students at the University of California and California State University systems. Community college fees will remain unchanged.

The budget reduces welfare grants by 2.3% for the Aid to Families with Dependent Children program, but overall health and welfare spending will rise by 3.3%, to $14 billion.

A renters' income tax credit that gives a $60 credit to individuals and $120 to couples was suspended for the 1995 tax year, which will provide savings of $390 million in fiscal 1996. Last year's budget suspended the credit for the 1994 tax year, providing a savings of about $415 million.

The youth and adult corrections budget will see a 9.5% increase in funding, to $3.7 billion, to account for "anticipated growth in the state's inmate population," including implementation of the so-called three strikes sentencing measure passed earlier this year, a Wilson budget summary said.

"There is growing evidence that California is showing signs of an economic turnaround," said the summary, prepared by the state department of finance, which has close ties to the Wilson Administration.

"California's employment growth is being led by the construction, trade, auto manufacturing, and tourism industries," the budget summary said.

California's jobless rate remained steady in June at 8.3%, the highest of any industrial state. Nationally, the unemployment rate remained at 6% last month.

"Downside risks include continued job losses in the defense and aerospace industries, and uncertainty regarding interest rates, which could have a chilling effect on new home construction and related purchases," the budget summary said.

California's creditworthiness following the budget's adoption was said to be one of the top agenda items during discussions among California officials, rating agencies, and investors at meetings yesterday in New York.

The officials -- state Treasurer Kathleen Brown, Controller Gray Davis, and department of finance director Russell S. Gould -- will also meet with West Coast investors in Los Angeles on Wednesday.

The meetings are designed to summarize the budget and to provide details of the state's cash management program.

To kick off the program, the state plans to sell via competitive bidding $4 billion of revenue anticipation warrants, Series C, D, and E, on July 20. The Raws mature in April 1996. On July 27, the state will sell via negotiation $3 billion of revenue anticipation notes, which mature next June.

A portion of the $4 billion Raws offering will be enhanced by a consortium of domestic and internal banks, assuring in vestors that banks providing the credit support will redeem the warrants if the state cannot.

The budget includes a "trigger" provision to reassure financial markets that California will repay the obligations. Beginning next February, the trigger would impose automatic spending cuts in most state programs if the budget falls out of balance, and if the state's political leadership fails to resolve the revenue shortfalls.

The trigger bill is a significant achievement, controller Davis said Friday.

"The only redeeming aspect of this year's budget is the trigger bill, which forces the state to live within its means," Davis said. "Years from now, we may very well consider the trigger bill to be a watershed event that brought California back to fiscal responsibility."

How favorably the rating agencies will view the trigger mechanism remains to be seen.

Amy Doppelt, a senior vice president for Fitch, said the meeting yesterday with California officials "was very productive in terms of getting information" from the state.

Fitch hopes to make a comment on the state's long-term ratings by Friday "or shortly thereafter," once the agency has had time to study the "total budget and cash flows," Doppelt said.

"I'm hoping" a Standard & Poor's rating committee will meet "toward the end" of this week, said Steven G. Zimmermann, the managing director of the Western regional office of Standard & Poor's. The rating agency wants to release the Raws and Rans ratings simultaneously, "assuming we can get the information we need," he said.

"We will definitely look at the state's rating as well," Zimmermann said.

"Any long-term rating action would be taken in connection with the Raws" rating assignment, Moody's Brodsly said. "It is a natural time to confirm or change a rating when you are rating another security."

In June, Moody's said it would reexamine its rating following adoption of the budget. Standard & Poor's in February revised the state's longterm outlook to negative from stable. Fitch in March changed its California trend to declining from uncertain.

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