CALIFORNIA ELECTIONS / GOVERNOR : Wilson Policy Put Bond Rating at Risk, Brown Says

State Treasurer Kathleen Brown returned from Wall Street on Wednesday to declare--in her role as Democratic candidate for his job--that there is only so much she can do in her current official capacity to “rescue” Republican Gov. Pete Wilson from the impact of a $7-billion cash flow problem.

“Four years of Pete Wilson’s fiscal and economic mismanagement have turned the Golden State into the IOU state, and America’s promised land into the land of broken promises--a sad day for California,” Brown, the Democratic candidate for governor, told reporters.

Brown was one of several state officials meeting with investors and bond-rating agencies in New York this week in an effort to persuade them not to downgrade California’s current AA bond classification. A downgrading would lead to higher interest rates paid by the state on its borrowing and dim the allure of its financial instruments.

But Brown fears that a fourth year of deficit budgeting by Wilson will lead Moody’s, one of the three major bond-rating agencies, to drop California’s level to among the lowest of all the states, she said in a news conference held just off the floor of the Pacific Stock Exchange.

“What I always have endeavored to do as state treasurer is to state the facts and nothing but the facts,” Brown said of her role in the annual New York sessions. “I have not endeavored to defend the governor’s budget. The Department of Finance is there to do that.”

Brown did, however, embrace a suggestion by a radio news reporter that her own plan for financing California’s $3 billion in long-term debt was similar to that used by former Republican Gov. George Deukmejian, Wilson’s immediate predecessor.

“George Deukmejian came into office and said he had inherited an IOU state and he would make it an A-OK state,” she said. “He did bring California to an A-OK status and four years of Pete Wilson has brought this state to its knees--from a AAA state and an A-OK to IOU and down to the bottom of where states are ranked nationally among the credit agencies.”

That was only part of the story, however. In the final year of Deukmejian’s second term, the recession and defense budget cutbacks slammed the California economy and plunged the California budget into the red again.

By January, 1991, when Wilson had to submit his first budget--and the last Deukmejian budget was still in force--California faced a multibillion-dollar deficit. That deficit ultimately was resolved in part through spending cuts and a massive tax increase.

A current Brown-for-governor campaign ad is critical of that tax increase, opening with an announcer saying, “The Wilson Years: tax hikes, IOUs, now this--$7 billion in borrowing.”

In a response to Brown’s ad on Wednesday, the Wilson reelection campaign issued a statement saying, without mentioning Deukmejian: “Pete Wilson inherited the biggest state budget deficit in American history . . . Gov. Wilson balanced the budget despite these enormous challenges.”

The statement also quoted from an Aug. 20, 1991, letter from Treasurer Brown to Wilson: “It is clear that it was your good work in providing a prudent, balanced budget under extremely difficult fiscal circumstances that enabled the (rating) agencies to affirm our creditworthiness. You demonstrated the political will to address our budget problem with meaningful reforms.”

Brown’s own finance plan calls for refinancing the ongoing state debt over a five-year period with the sale of bonds to be paid off partly by continuing a temporary income tax surcharge on the state’s wealthiest taxpayers and by more spending reductions.