DALLAS -- Texas officials yesterday approved a $1.7 billion cash flow borrowing for fiscal 1994, which will set a record for the third consecutive year.

An even bigger sale is planned for the following year, the officials said.

The five-member Texas Management Note Committee unanimously authorized Treasurer Martha Whitehead to proceed with a Sept. 23 competitive sale of $1.4 billion in tax and revenue anticipation notes.

An official said another $300 million in commercial paper would be sold by early next year.

John Bell, a spokesman for the Texas Treasury, said the state's top-rated one-year notes will likely fetch interest rates of 2.9%. "It's too early to tell, but I think it's in that range," he said.

Bell said the $1.4 billion in Trans are scheduled to close Oct. 1. While Texas officials were focused yesterday on fiscal 1994, which begins Sept. 1, they also authorized up to $2.5 billion in short-term borrowings in fiscal 1995 to cover projected revenue deficits.

Last year, Texas borrowed $1.5 billion by selling Trans.

The state's cash flow need will peak at nearly $1.7 billion in May, when revenue flows are at the lowest level.

A cash flow borrowing becomes necessary when the flow of revenues does not meet anticipated expenditures. Such a borrowing, however, does not indicate revenue shortfalls that create actual gaps between costs and revenues.

The $1.7 billion projection is in line with a trend in recent years of record-setting cash flow borrowings in Texas. Wall Street analysts yesterday said the trend is an indicator of continued pressures on the state budget.

"The deficit is about what we expected," said Hyman Grossman, managing director at Standard & Poor's Corp. "It is a small symptom. It makes it harder for the state to [return to] an AAA rating because it puts pressure on their financial situation."

Texas, which lost its prized triple-A ratings after the mid-1980s downturn in the oil industry, is rated double-A by Standard & Poor's and Moody's Investors Service. Fitch Investors Service rates the state's general obligation debt AA-plus.

Analysts said there could be increased pressure on the state's cash flow needs as issues such as the growing cost of the corrections system and the uncertain future of local school funding are resolved.

Noting those challenges, George Leung, vice president and director of state ratings at Moody's said, "The impact on the state's cash flow in the future is something that still needs to be reviewed."

While Texas' cash flow needs have increased, so has the state's yearend cash balances. Last year, revenues were stronger than expected and Texas finished with a cash balance of $609 million -- nearly double what had been projected.

State officials note that revenues for the current fiscal year are $494 million ahead of schedule.

One factor influencing the level of external borrowing is a state law that will cause up to $1.3 billion in balances from 281 funds to be consolidated into the general revenue fund when the new fiscal year begins next month.

Officials said that while the consolidation does not directly increase the cash flow deficit, it does limit the amount of money that would traditionally be available for interfund borrowing in fiscal 1994.

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