SAN FRANCISCO - California's finance officials this week are expected to announce the size and shape of the state's upcoming cash-flow borrowing.

Officials from the controller's office, the treasurer's office, and the Department of Finance are expected to conclude their review of the budget revisions enacted in late July to determine their exact effects on the state's precarious cash position.

While the state government itself is still trying to sort out where it stands financially, its University of California system is preparing to sell more than $1 billion of bonds next week, including its first taxable Build America Bonds.

The state does a cash-flow borrowing most years, to adjust for structural cash-flow imbalances in the general fund that result from more tax revenue coming in toward the latter half of its July-to-June fiscal year.

But the importance of the borrowing, and the trickiness of executing it, have been exacerbated this year by the state's ongoing cash crunch as tax revenues have come in below expectations.

Since July 2, the controller's office has been issuing registered warrants, or IOUs, to creditors without legal or constitutional protection, to conserve cash for creditors who enjoy such protections, including bondholders. The IOUs have continued to come off the printing press, even after the budget revisions were adopted - more than $1.86 billion through Friday, according to Hallye Jordan, spokeswoman for the controller.

California's cash-flow strategy will be a key determinant of its credit rating, according to a comment issued by Moody's Investors Service July 30.

"A very large cash-flow borrowing, or one that stretches across fiscal years, could place additional stress on the state's cash position at the end of this fiscal year or next year," the comment said. Moody's rates California general obligation bonds Baa1. Fitch Ratings assigns its BBB rating. Standard & Poor's rates them A.

The University of California, though it is a state entity, operates with substantial autonomy that has helped it preserve much higher ratings than the state, which should smooth its plans to enter the bond market next week.

The UC system is planning to issue about $1.3 billion of general revenue bonds, according to information published by Standard & Poor's, which affirmed its AA rating Friday but had not published its rationale as of midday yesterday.

The transaction is expected to include tax-exempt bonds and Build America Bonds, with Barclays Capital and Morgan Stanley running the books, according to information the treasurer's office posted on its Web site. Further details were unavailable yesterday.

Moody's rates outstanding University of California general revenue bonds Aa1.

The state's budget theatrics continued last week when Senate President pro tempore Darrell Steinberg, D-Sacramento, said he would file a lawsuit challenging Republican Gov. Arnold Schwarzenegger's $489 million in line-item vetoes from the budget revision.

The governor issued the vetoes after Assembly lawmakers refused to pass two of the budget-balancing provisions their leaders negotiated with the governor.

The governor has authority to use the line-item vetoes on appropriations. The legal debate will be over whether the items in question - which were part of a budget revision package rather than the budget itself - were really appropriations.

Steinberg says they're not. The administration's lawyers say they are.

Eventually, a judge will decide after a process that will be measured in years. The key question, for this year's budget, is whether the trial court judge will grant an injunction against the vetoes.

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