LOS ANGELES -- California Gov. Pete Wilson's decision to wait until mid-June to release his final spending plan for fiscal 1995 has hampered planning for next month's record $6.9 billion short-term borrowing, state assistant treasurer Hal Geiogue said last week.

The negotiated financing, scheduled to be priced July 20, would surpass a $5 billion revenue anticipation note sold in September 1992, also by California.

California officials are not bragging about the unprecedented size of the municipal borrowing, however, because it underlines the state's fiscal stress and declining cash position.

"We are looking at different structures, but they are somewhat hypothetical" until the budget for the fiscal year beginning July 1 is in place, Geiogue said Friday.

The borrowing will probably provide investors with fixed-rate and variable-rate maturities, he said.

"The sooner the [Wilson] Administration presents their final budget, the better it will be for getting everything done in time," Geiogue said.

Meanwhile, "many options" in structuring the borrowing are being discussed, including the offering of both revenue anticipation notes and revenue anticipation warrants, Geiogue said. Unlike notes, warrants do not have to be repaid in the same fiscal year they are issued.

Bank letters of credit to support a portion of the financing also are under consideration, Geiogue said.

Wilson's proposed $38.8 billion general fund budget has spurred considerable debate because it would remain balanced only if the state receives $3.1 billion of federal funding to reimburse California for the costs of providing education, health, welfare, and prison beds to illegal immigrants.

"Nobody believes" the state will obtain that amount of federal aid, said Dan Rabovsky, principal program analyst for the nonpartisan state Legislative Analyst's Office. More likely, the state will receive $400 million to $500 million offederal dollars, he said.

Close to Wilson

The California Department of Finance, which is closely aligned to the Wilson Administration, does not assume Wilson will extract the requested amount from the federal government, a finance official said last week.

However, the infusion of $3.1 billion of federal funds is "something we are fighting for," said Harold D. Palmer, assistant director of the finance department. By mid-June, the department "will make a realistic assessment" of expected federal funding and expects to "put forth a plan that deals with federal funding -- or the lack thereof," he said.

Officials with Bank of America, senior bookrunning manager for the short-term borrowing, are anxious to know what alternatives to federal dollars Wilson will put forward to balance the budget. The officials reportedly need up-to-date budget numbers to line up letter-of-credit banks to provide credit support for the borrowing.

Delaying the borrowing until later in the summer is not practical. On July 26, $2 billion of revenue anticipation warrants mature. A portion of the proposed July 20 borrowing is intended to repay the maturing warrants, which were part of a $3.2 billion competitively did warrant issue last February. Another $1.2 billion of February warrants mature in December.

Holders of warrants maturing July 26 would receive payment even if the state did not have cash on hand because four banks signed unconditional standby bid agreements agreeing to purchase the warrants.

"No event would stop us from paying" the warrants "because we have authorization to do refunding RAWs," Geiogue said.

Rating agency officials are monitoring next month's borrowing to see how the state's political leadership plans to resolve California's accumulated $3 billion deficit.

In February, Standard & Poor's Corp. revised the state's long-term outlook from stable to negative. In March, Fitch Investors Service changed its uncertain trend to a declining trend for California. Moody's Investors Service has said in recent credit comments that California's budget contains "extremely ambitious and unrealistic assumptions, especially those regarding federal aid."

"California's credit trend is declining because of its growing reliance on external borrowing," said Fitch vice chairman Claire G. Cohen.

"We want to see a plan to pay off the accumulated deficit tied to a balanced budget," said Steven G. Zimmermann, the managing director of the Western region office of Standard & Poor's.

Treasurer Kathleen Brown has proposed legislation to eliminate the state's chronic deficit by selling up to $4 billion of deficit-revenue bonds that would be repaid over five years. If this multiyear budgeting approach is approved by the legislature and obtains a court validation, the first series of bonds could be sold in September.

Other budget deficit reduction options might be politically unrealistic, such as raising taxes or making deeper budget cuts.

Not unexpectedly in an election year, the budget debate has taken on partisan political overtones.

Brown is a candidate for the Democratic gubernatorial nomination in today's statewide primary. The winner is expected to face Republican Wilson in the November general election.

Late last month, Brown said that Wilson's "budget is a lie" because it is balanced on the assumption that the federal government would give the entire $3.1 billion requested by the governor to cover the costs of illegal immigrants.

She than asked state Attorney General Dan Lungren whether it would be legal to issue revenue anticipation notes in July under the assumption that the state would receive all $3.1 billion in hoped-for federal funds.

In framing her question to the attorney general, Brown said that if $6.9 billion of notes were issued in July, an additional $3.3 billion of revenue anticipation warrants would have to be issued next February. The warrants would be needed to cover payment of the original loan if federal immigration payments failed to materialize.

Based on Brown's scenario, Lungren replied that if the state does not receive $3.1 billion in federal reimbursements, the state could not rely on an additional external borrowing -- using the warrants to pay off the notes -- because it violates the state constitution's debt limitation clause.

Reacting to the attorney general's opinion, Moody's "is concerned about this newly emerged legal constraint," said Renee Boicourt, a vice president and assistant director at the rating agency.

'Fatal Doom'

But assistant attorney general Floyd Shimomura said the opinion does not "fatally doom all possible alternatives" for the state.

"It just forecloses that one way" proposed by Brown, Shimomura said, adding that he "would be awfully surprised" if state finance officials cannot develop a financing that would receive an unqualified opinion of its validity by the attorney general.

However, state Controller Gray Davis warned that the inability of the attorney general to provide an unqualified opinion could delay a proposed borrowing and lead to a cash crisis.

Davis said this could force him to issue reimbursement warrants, or IOUs, for the state to pay its bills.

The fiscal 1993 year began without a budget, forcing Davis to pay bills with $3.8 billion of registered warrants, the only time the state used IOUs since the Great Depression.

"It is now up to the governor and the legislature to develop a credible budget deficit reduction plan in which potential investors will have confidence," Davis said in a recent press release. "Otherwise, in July the state will be up a creek without a paddle and be forced into the unpalatable and embarrassing situation of paying our bills with IOUs."

Meantime, the buy-side appetite for the July short-term borrowing appears to be healthy, four investors said last week. The investors said it is too early to know what financial effect California's credit woes might have on pricing levels.

"Right now, there is a high demand for short-term borrowings," said Joseph Rosenblum, director of municipal credit research for Sanford C. Bernstein & Co. "In a normal situation, California would do well, but it is not in a normal situation."

State officials have proved they can structure short-term obligations "in a way that is acceptable to the market," said Cadmus Hicks. Western region supervisor for John Nuveen & Co. California "should be able to sell the notes."

A money fund manager who asked not to be named said that as long as the borrowing obtains credit enhancement and "proper ratings, we're going to buy it, and so are the other money funds."

"We're going to look at the deal very carefully and see how it is structured," said John Guarascio, associate municipal portfolio manager for the Benham Group. "That will determine whether we purchase it or not."

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