New York State's budget has to be patched up again, but its competitive offering of $225 million of general obligation bonds is expected to attract aggressive bidding today.

The state's budget division projects a $689 million shortfall in fiscal 1992, which began April 1, and a $1.8 billion gap in fiscal 1993. Lawmakers in Albany and Gov. Mairio M. Cuomo are now mulling proposals to fill the gaps.

The deal is expected to get a small boost from the rating agencies, which affirmed the state's GO ratings: an A from both Moody's Investors Service and Standard Poor's Corp., although the second firm has stickered the state with a negative outlook.

More importantly, market conditions will overcome any qualms investors may feel over the state's four-year string of budget crises, market participants predicted.

"It seems that right now there is much more demand than supply," said one underwriter. "Buyers are looking for yield. People want the stuff so bad they don't care about the budget story, they want the bonds."

Another underwriter said, "Although there is uncertainty with the budget, it will be competitive." Four accounts are expected to vie for the offering.

"Nobody ever takes fiscal woes too seriously because it doesn't end in defaul," said one New York-based trader. "Demand is still there and should continue to be there, unless the government market gets into trouble. Money is still pouring into the bond funds."

In fact, the budget problems are expected to make the yields on today's offering a little richer, dealers said.

They said they expect the yield on the long end to top high-grade bonds by about 40 to 50 basis points. Last week, California bonds, rated triple-A, were yielding around 6.40% to 6.45% on the long end.

For the New York offering, dealers are expecting the long end to show a yield as high a 6.90%. In 10-years, they are suggesting a yield of $6.20% to 6.25%.

Insured New York paper in 20 years was recently quoted at 6.55% yield, while uninsured paper in 20 years was quoted trading around 6.65%. The Bond Buyer's 20-Bond Index of general obligation yields was listed at 6.71% on Nov. 7, and the New York State GO yield, a component of the 20-bond index, was 6.84%.

The last state GO offering, a $191 million deal on July 31, was won by a group headed by Chemical Securities Inc. at a true interest cost of 6.665%. The cover bid was made by an account led by J.P. Morgan Securities Inc. with a true interest cost of 6.6755%. A syndicate led by First Boston Corp. bid a true interest cost of 6.6954% and a team led by Marine Midland Capital Markets Corp. submitted a bid for a true interest cost of 6.6995%.

At the time of the last sale, The Bond Buyer 20-bond index was 7.00% on July 25 and the New York State GO yield was 7.02.

Although that deal saw strong bidding, one member of the winning syndicate described the distribution of the bond as a "workout."

"It took time to distribute them," he said. "A lot of it had to do with the size of the issue. There was heavy supply at the time."

On today's deal, one dealer said the budget crisis will have a slight impact the pricing. "It will definitely have an impact," he said.

Nevertheless, yield-hungry investors are expected to pay a little more for the A-rated bonds. "You might get some property and casualty companies because there will be extra yield provided," said one dealer. "You will probably see your standard retail investors in the two-year to 10-year range and large institutional investors in the 15 to 30 years, hopefully."

In its ratings report, Moody's said the state's rating reflects New York's "diverse and substantial economic base, but this source of strength is offset by structurally imbalance finances and growing debt levels."

The state's structural budget imbalance has been worsened by the Northeast's economic downturn, producing four consecutive years of deficit opeations, the report notes. "The recent midyear financial plan now indicates an imbalance for the fifth year," the report says, calling for structural reforms in the state's spending practices.

Standard & Poor's said in its report that the negative outlook it has assigned the state shows its "concern for continued economic volatility and uncertainty over the state's ability to maintain balanced fiscal operations."

To solve the budget problems this year, Gov. Cuomo and Democratic lawmakers from the State Assembly are studying a multiyear plan that may close the budget gaps projected in fiscal 1991 and 1992, a spokeswoman for the state's budget division said.

The proposals call for "trying to close all our problems at once," she said. State Senate Republicans would prefer to slash spending in the current budget to deal with the midyear problem.

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