LOS ANGELES -- A $750 million sale of governmental warrants needed by fiscally strapped California is being delayed by Gov. Pete Wilson's reluctance to appropriate special funds for borrowing costs, state sources said.
State Controller Gray Davis has said the state must sell reimbursement warrants, a form of IOU resembling a short-term note issue, within the next four weeks so California can pay its bills through the fiscal year ending June 30.
But Gov. Pete Wilson's failure to approve the estimated $1.5 million needed to cover issuance costs, which could include credit enhancement, bond counsel, and financial adviser fees, is holding up the sale.
"Everything is on hold, waiting for the governor's office to officially authorize funds for borrowing costs," said Edd Fong, spokesman for the controller. "At this point, we cannot move full speed forward until this issue is resolved."
State finance leaders met yesterday to discuss various ways of funding borrowing costs for the reimbursement warrants. Mr. Fong said the governor was looking into "creative ways" of paying issuance costs, but said he could not elaborate.
The reimbursement warrants have been the subject of negotiation and controversy between state finance officials and the governor for the past several weeks. Under state law, the controller is responsible for selling the warrants, but the governor must approve the issue's size and maturity date.
While Gov. Pete Wilson has authorized the creation of a revolving cash fund needed to issue the warrants, he had not appropriated money to pay issuance costs by yesterday afternoon.
The governor last week called for the warrant to be redeemed on July 5. However, Mr. Davis charged there would not be enough revenue in the cash revolving fund to redeem $750 million of warrants on July 5 and asked that the date be extended to July 24.
While the governor has informally approved a later maturity date for the reimbursement warrants, he had yet to sign a formal authorization as of yesterday, according to Mr. Fong.
California has traditionally met general fund cash shortages with in-house borrowing from other funds. This year, however, the state is short $600 million needed to pay bills due by June 30, the controller said. The state is expected to finish the fiscal year with a budget deficit of nearly $4 billion.
State officials must take some kind of borrowing action in the next few weeks to meet pending state obligations, such as debt service and school funding requirements.
Reimbursement warrants, similar to deficit notes issued by New York, are sold by competitive bid to an underwriting syndicate, much like traditional short-term note issues.
A spokesman for the controller's office said the state will hire a financial adviser for the sale.
The controller originally requested a $4 billion warrant sale, which the governor rejected, because it would have carried the state into the next fiscal year and "encouraged" the legislature to delay passing a budget by the June 15 deadline, the governor said in a letter to Mr. Davis.
In the past few years, the legislature and the governor have not agreed on a budget until late July. If the reimbursement warrants are sold by mid-June 15, the state not approved by June 15, the state could be forced to issue registered warrants to pay other state bills, the controller said.
The state last sold warrants in 1982, and the $400 million of warrants were designed to resemble conventional revenue anticipation notes.
Stanadard & Poor's Corp. recently placed California's general obligation debt on CreditWatch, after April tax returns fell short of projections. Rating officials say they are monitoring the situation.