Treasurer Warns of Credit Peril : Finances: She warns legislators that delays in passing a budget could hurt state’s rating and increase the cost of borrowing.

State Treasurer Kathleen Brown warned legislative budget writers Thursday that failure to speedily enact a budget will jeopardize the state’s credit rating, push up the costs of borrowing money and leave California without money to pay its bills in July.

The bad news came as the result of discussions Brown conducted with finance officials for Wall Street investment firms, she told members of a two-house budget conference committee that is grappling with an anticipated $14.3-billion budget deficit.

Disclosing the substance of the talks, Brown said Wall Street lenders expect to see some “meaningful budget reforms,” and not just one-time fixes to deal with the deficit.

The Democratic treasurer estimated that if credit rating firms reduce California’s perfect AAA rating, it would cost an extra $40 million for each $1 billion of bonds the state issues. With the state expecting to issue $3 billion in bonds to build schools, prisons and other facilities in 1991, she said, a credit downgrade would cost the state an additional $120 million.

In addition to these bonds, another $9.5 billion worth of bonds have been approved by voters and are waiting to be issued, Brown said.

Private lenders are so concerned with the state’s budget situation, Brown said, that she postponed a $1.4-billion bond sale planned for early June, figuring it could have triggered an immediate downgrade. The delayed bonds would have been sold to raise money to build schools, prisons and provide dollars for housing, earthquake safety and hazardous waste cleanup.

The treasurer also warned that the state’s credit problems, if they develop, would create a ripple effect that would increase the borrowing costs for cities, counties and other local government agencies linked to the state’s bond program.

Brown also said that until the state has a budget, California, to meet its short-term cash-flow demands, will have to borrow money at a rate of 7%, rather than 4%.

Steven G. Zimmermann, an executive with Standard & Poor’s Corp., which put California on a credit watch several months ago, said Thursday that his firm will delay a decision on downgrading the state’s credit rating until it sees whether the Legislature meets its June 15 constitutional deadline to produce a budget.

“We are following (the budget situation) very closely,” Zimmermann said during a telephone interview.

The committee got its first dose of good news Thursday when Kevin Scott, executive secretary of the Commission on State Finance, said he believes the recession “is at its end” and predicted a slight recovery beginning sometime this summer. Scott said he believes tax collections during the fiscal year beginning July 1 will be $1 billion higher than the amount being predicted by Gov. Pete Wilson’s budget advisers.

Wilson’s top budget adviser, Finance Director Thomas W. Hayes, gave a gloomier assessment on Monday, telling lawmakers that there was no telling how long the recession would drag on.

The committee adjourned Thursday still $2.3 billion short of its goal of producing a balanced plan of budget cuts and tax increases to deal with the deficit.