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State completes history's largest municipal-bond sale 
California's treasurer executed the largest single sale of municipal bonds in U.S. history Tuesday -- a $5.7 billion offering aimed at covering cash shortages linked to the state's energy crisis. 
The sale -- coming in an environment of record-low interest rates -- also proved to be the cheapest such short-term financing by the state on record. 
And it provided a backdrop for a warning from state Treasurer Phil Angelides that continued delay in the long-awaited $12.5 billion energy-bond sale could wreak havoc with the state's budget in the next fiscal year. 
With the Sept. 11 terrorist attacks delivering a blow to an already shaky economy, there is concern that state revenues may drop even more precipitously than they have in the past year, leading to a crunch for the fiscal year that begins July 1, 2002. 
The slower state revenues coupled with increased expenditures and the added burdens of the ongoing energy crisis, could force "Draconian" budget cuts, Angelides said. 
"We were already facing tough budget times in 2002-2003," he said, "and that was before the tragedy of Sept. 11." 
Now, if falling revenues are added to the "$6 billion hole, we'll have deficits akin to the early 1990s," Angelides said, noting the dramatic effects would be on people who depend on state services. 
Earlier this year, the state advanced $6.2 billion in general-fund money to buy wholesale power for customers of Pacific Gas and Electric Co., Southern California Edison and San Diego Gas & Electric Co. 
Repayment to the state general fund depends on successful sale of the $12.5 billion in energy bonds -- a transaction Angelides said requires key approvals from the state Public Utilities Commission. 
The huge energy-bond sale initially was proposed for this summer and then moved to late October or early November. 
But the plan before the PUC has drawn heavy opposition from state utilities. 
With utilities and others threatening lawsuits at every step of the way, regulators have needed time to build a legal record for each of the seven decisions the treasurer seeks, PUC President Loretta Lynch said Tuesday. 
This year, "we've been taken to court probably five times more than we've been taken to court last year," partly because the commission has been making historic decisions and partly because it's been trying to make them so fast, she said. 
But Angelides said that given the delay in PUC action, he is doubtful an energy-bond sale can occur before 2002. 
Besides raising the budget concerns, that also could mean that California misses an opportunity to capitalize on the very low interest rate environment. 
"I do not see a way now that this bond issue can happen this year," he said, citing the minimum 60 days of public notices and appeal periods that would follow PUC action. 
Tuesday's bond sale to meet the state's cash-flow needs involved what are known as revenue anticipation notes. 
The notes are fixtures on California's cash-flow landscape. In 1993-94, for example, the state sold $8 billion through multiple offerings. No such sale was held last year because the state had an adequate surplus. 
But a year earlier, in fiscal 1999-2000, $1 billion in notes were sold to meet cash-flow needs. 
Besides being the largest municipal-bond sale on record, Tuesday's sale was also the largest muni- and corporate-bond issuance since the terrorist strikes. 
Tuesday's debt issuance was viewed widely as a success because the vast majority of the securities found buyers. 
"It speaks to overall quality of the state's credit and the way the state is perceived, particularly in light of Sept. 11," said Peter Taylor, senior vice president in the Los Angeles office of Lehman Bros. 
As senior manager on the sale, Taylor and Lehman Bros. coordinated participation of more than 20 investment-banking firms. 
"There was wide acceptance from a range of investors, retail (buyers), mom-and-pop buyers all the way to mutual funds and corporations," Taylor said. 
The level of orders exceeded the offering by more than $2 billion. That allowed yields to be lowered through negotiations from the 2.25 level initially proffered to the lowest RAN on record in the state, an annualized 2.22 percent. 
The notes mature June 28, 2002. Overall yield, counting the variable-rate portion of the issuance, is only 2.17 percent. 
Had the $6.2 billion in general-fund money been repaid, Angelides said, the need for Tuesday's short-term debt issuance "would have been substantially less ... if not eliminated." 
Even so, Angelides said the state was fortunate to "move into the market and get extraordinary interest rates, and we will be able to make it through this fiscal year."