DALLAS -- Comptroller John Sharp's plan to seal a $4.8 billion shortfall without a big boost in revenues may win applause from Texas taxpayers, but it has bond lawyers and investment bankers worried.

Eighty-four pages into his 1,200-page report on cutting cots through merging and eliminating state agencies, Mr. Sharp lists 16 specific suggestions to change the way Texas sells its debt. The proposals range from a widely supported debt management plan to a recommendation for abolishing 20 state agencies and giving their bond issuing powers to the Texas Bond Review Board -- the agency created to oversee state issuance.

The idea of the same agency overseeing state bond deals while issuing debt has the bond community worried about potential conflict. But their concerns are also economic: Any money that consolidation saves for Texas could come at their expense.

"It's a full-unemployment measure," a Texas bond lawyer said. "The problem out there now is that the state is already getting a pretty damn good deal on their fees."

A Houston investment banker said that now only a few firms compete for state business -- which paid $2.14 million in fees and expenses on $1.1 billion in issuance in fiscal 1990 -- and mergers are likely to mean even less competition.

"State business is just not that profitable now," he said. "Eliminating it and consolidating it won't hurt most people's pockets, but it will hurt the major firms."

Last year, Thompson & Knight of Dallas was the top bond counsel for state issues' the Principal/Eppler, Guerin & Turner Inc. of Dallas was the top financial adviser; and the leading senior manager was Chase Securities Inc.

The proposed consolidations and other measures are included in the nearly identical S.B. 3 and H.B. 3, which are awaiting committee action in the special budget writing session that began Monday.

Deputy Comptroller Billy Hamilton said the proposals are not intended to put investment bankers and bond lawyers out of work. Rather, he said, "A lot of this was driven not by what we could save the budget, but by what the government ought to be doing in some areas."

However, auditors have estimated that empowering the Bond Review Board could save a projected $342,000 a year. But that number is suspect becuase fees are paid from bond proceeds, not directly from state appropriations.

Besides, Mr. Hamilton says, restructuring the double-A rated state's bond issuing process is the real goal.

"It was not that anyone was doing anything wrong or inappropriate or not in a conservative way, but that at some point in the future there could be a problem," he said.

But underwriters say the idea of letting the Bond Review Board oversee state issuance, while giving it the power to issue, would create just such a problem.

"It's like putting the fox in charge of the hen house," said one investment banker, who asked not to be identified. "Most everyone agrees that oversight is a good think, but these [recommendations] prove that government can never just leave good enough alone."

Bond dealers are not alone in worrying about a possible conflict. "As a matter of public policy, it is not the best policy," said Treasurer Kay Bailey Hutchison.

Her suggestion: Give the power to sell such bonds to the state treasury. Politically, however, that is not practical, since Mrs. Hutchison is a Republican while Democrats control the Texas Legislature.

The idea behind the consolidation of bonding authorities is simple enough. Auditors who looked at the state's debt-issuing practices found that many agencies, particularly obscure universities, infrequently sell bonds and rely heavily on paid advisers for direction.

On the other hand, auditors found that the finance staff of other agencies, such as the Texas Water Resources Board, are sophisticated enough to know what they are doing.

What they rrecommend is to give the Bond Review Board the issuing powers of 20 agencies, including the prolific Texas Public Finance Authority and lesser-known issuers such as 16 universities, and leave other state issuers alone.

Others have suggested the same could be accomplished by consolidating the agencies into the Public Finance Authority, making it a mega-issuer for state capital projects.

Marc Stanley, the authority's new chairman, has endorsed the comptroller's proposals as sound. "Essentially, what he says makes sense," the Dallas lawyer said. "He's recognized the need to consolidate debt issuing authority."

Ironically, the authority has gained a reputation for having the lowest cost of issuance of any state agency with methods that include hiring bond counsel at an hourly rate with a fee cap.

Such practices have made it possible for the agency to get bond counsel work for as little as 11 cents a bond. Added Mr. Stanley, "I think [the report] is recognizing the success of the agency,"

But the Sharp report also contains some major recommendations for better debt management and increasing the debt reserves of the state ina long-term move to restore the triple-A rating Texas lost in 1987.

Specifically, the report calls for expanding the role of the Bond Review Board to include developing and keeping debt monitors and drafting a six-year capital plan for Texas.

"I think that is going to help," Mrs. Hutchison said, "I think the Legislature is very in tune with the debt problem."

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