California's dismal finances, coupled with the turmoil surrounding the recall election, will complicate efforts to sell $18 billion worth of bonds needed to keep the state financially afloat, state Treasurer Phil Angelides said Friday.

Angelides, briefing reporters on four separate upcoming bond sales, labeled the Oct. 7 recall against Gov. Gray Davis "clearly a wild card in terms of its impact."

He noted that the two big Wall Street credit-rating firms already have downgraded California's bonds to the lowest level in the nation. Although each bond offering carries its own rating, he said, California's bad reputation on Wall Street surely will influence how the bonds are rated. A low rating translates into higher interest rates paid by taxpayers. Angelides declined to predict what sort of rates the state can expect on the upcoming bonds.

The saving grace for California is that the state's bonds traditionally draw plenty of investors. Although the state's problems have scared off some investors, others are taking an interest because of the bonds' higher yields, said Gary Larsen, managing director of a California municipal bond fund at U.S. Trust Co. in Los Angeles.

California bonds pay about a half-percent more than higher-rated municipal bonds, Larsen said, although that premium has shrunk since the Legislature passed the budget.

"The market is less frightened than it was a couple of months ago," he said.

Angelides said at least one group of bonds -- $3 billion in so-called revenue-anticipation notes expected to be sold in October -- will probably be offered with "credit enhancements," in which the state pays banks or other financial institutions a fee to guarantee repayment of the notes. Credit enhancements make bonds more attractive to investors.

The state spent $84 million on credit enhancements for an $11 billion bond sale in June; without them the state would have had serious trouble lining up enough buyers. But even with such incentives, several key mutual funds that traditionally buy California bonds sat out the offering, state officials said.

Those credit enhancements wound up costing $118 million. After credit rating agency Standard & Poor's Corp. downgraded the state's debt rating by three notches in July, the state had to pay a $34 million penalty to the banks that guaranteed the bonds.

Besides the revenue-anticipation notes, the state will issue $11 billion in "deficit bonds," $2 billion in bonds to make the state's obligatory payment to the California Public Employees' Retirement System, and $2.3 billion in bonds backed by future payments from the tobacco litigation settlement.

Angelides noted that pending litigation could complicate some bond sales. The Howard Jarvis Taxpayers Association is suing to block the CalPERS bond and the Pacific Legal Foundation is threatening to block the deficit bonds. The foundation contends those bonds cannot be issued without voter approval.