CHICAGO - An Iowa taxpayers watchdog group yesterday filed a lawsuit against state Treasurer Michael Fitzgerald in an attempt to stop a $375 million tax and revenue anticipation note issue planned for next week.

The suit, filed by lowans for Tax Relief, alleges that the state's cash-accounting system hides a long-term deficit. It asks the court to force the state to use generally accepted accounting principles, according to William Smith, the group's attorney.

The suit also claims that the state's issuance of Trans is effectively a refinancing of long-term debt and is therefore unconstitutional.

Mr. Fitzgerald said he expected the suit to be dismissed and that the state is proceeding with its plans to issue the Trans. Proceeds from the one-year notes would be used for late school aid payments and other expenditures.

He added that pricing of the Trans, scheduled for Tuesday or Wednesday, may be delayed a day while the state reviews the suit with its legal counsel.

Mr. Fitzgerald contended the lawsuit is the same as the one brought against the state last year by the taxpayers group. That suit, which was filed against the state's Executive Council - a state agency made up of the governor, secretary of state, auditor, treasurer, and secretary of agriculture - and all of its members as individuals was dismissed in April 1991.

A Polk County District Court ruled that the plaintiffs did not first seek to redress its complaints under the Iowa Administrative Procedures Act.

That act states that any complaint challenging a state law must first be reviewed by the agency before a court action can be filed.

But, Mr. Smith said that his clients have grounds to file the suit this year because the taxpayers group addressed its complaint to Executive Council members Richard Johnson, the state auditor, and Mr. Fitzgerald, who refused to issue a decision on their request. Mr. Fitzgerald said the Iowa Attorney General's Office had advised him and Mr. Johnson not to comment on the complaint.

Mr. Fitzgerald said that the action by the taxpayers group may ultimately have an adverse effect on taxpayers themselves because school districts need the Trans. proceeds to pay for overdue expenses caused by the late school aid payments.

"By delaying the Trans, the school districts may have to pay interest on over $300 million in outstanding debt. It could end up costing taxpayers," Mr. Fitzgerald said.

The lawsuit was the second setback for the Tran issue, which had been delayed after deliberations between the state legislature and Gov. Terry Branstad required an extra session last month.

The one-year Trans had originally been scheduled to be sold July 1. But the lack of a fiscal 1993 budget by mid-June delayed the sale. A $3.4 billion general funds budget was finally approved on June 30, a day before the beginning of the fiscal year.

Mr. Fitzgerald said the state could have proceeded to market before the budget was approved. However, lack of a budget could have made procurement of credit enhancement on the Trans difficult, he said.

Union Bank of Switzerland issued a letter of credit on the issue after the budget was completed, Mr. Fitzgerald said.

Meanwhile, Moody's Investors Service has confirmed the general obligation bond ratings o f 78 Iowa school districts affected by the delayed issuance of the Trans.

The school districts have been able to "to manage their financial resources adequately despite the school aid delay," according to a news release issued by Moody's Wednesday.

In its review, Moody's determined that each school district "has and will be able to fully meet its cash flow requirements on a timely basis for both operations and debt service on long-and short-term borrowings that are due between April and July."

Iowa's $375 million Tran issue is rated MIG-1 by Moody's and SP-1-Plus by Standard & Poor's Corp. Goldman, Sachs & Co. is the senior manager for the deal.

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