SAN FRANCISCO - The market for buying California bonds remains strong, but banking authorities gathered here Thursday for the California Municipal Finance Conference remain concerned about the state's ability to resolve its budget problems.

Bond market officials cited the state's structural budget gap as well as the increasing reliance on borrowing to pay deficits as two chief concerns. To a lesser degree, they also worry about California's unusual requirement for a two-thirds vote in the Legislature to pass a state budget.

Steven Zimmerman, managing director of Standard & Poor's bond rating service, said Wall Street would be buoyed if this year the state partially cuts into its structural deficit, estimated to be about an $11 billion gap between revenue projections and spending requirements. In Gov. Arnold Schwarzenegger's proposed budget, the state would get that gap down to $6 billion.

California's precarious fiscal situation is being closely watched in the banking industry because voters will consider an unprecedented $15 billion in bonds on the March ballot to help reduce the state's budget deficit. The bankers are measuring the appetite for buying state bonds as well as the prospects that California will resolve some of the problems that have plagued its budget process.

While taking a "wait-and-see" approach to the governor's proposal, "Any budget that would end up ... closing that gap, we'd view as a positive," Zimmerman said.

Bank officials were largely optimistic about the job that Schwarzenegger has done so far in managing the state fiscal crisis. But some felt that he also added to the state's fiscal uncertainty last fall by restoring about $4 billion to local governments that was lost by his decision to cut the vehicle license fee.

Those moves, coupled with Schwarzenegger's use of the term "bankruptcy" in his State of the State speech last month, made the market confused about California's problems, said Mark Stockwell, vice president and director of municipal research of PNC Advisors.

"Since the recall, we haven't seen where (the administration) has removed that uncertainty," said Stockwell. Schwarzenegger's use of the word "bankruptcy" didn't help, he added.

In comments Thursday morning, state Controller Steve Westly also noted the narrow prospects for the $15 billion bond measure on the March ballot. He is the most prominent Democrat to hit the campaign trail with Republican Schwarzenegger to promote the bond measure. Westly referred to internal polls that he said show 48 percent of California voters in favor of the bonds. An independent Field Poll in January showed that only 33 percent of California voters favored the bond issue.

David Blair, senior analyst for Nuveen Investments, said that while California lawmakers must show that they're dealing responsibly with California's fiscal problems to assuage the rating agencies, many are confident of Schwarzenegger's ability to convince Californians that the bonds on the March ballot are the right way to go.

Schwarzenegger "is a better salesperson to be selling these bonds than just about anyone else," said Blair.

If voters don't pass the governor's bond measure, state officials may try to sell a $10.7 billion bond that was passed by the Legislature with last year's budget. Currently, that bond is being legally challenged. State Finance Director Donna Arduin said the attorney general's office has told the administration that the legal viability of those bonds will be determined by this spring.

If that bond doesn't pass court challenges, the state may be forced to try to roll over at least $10 billion in short-term borrowing that is scheduled to fall due in June. If the bond measure passes, it would be used to pay the existing short-term loans.

Buyers of California bonds would much prefer that California voters approve the $15 billion in bonds on the March ballot than see the state venture into the two other scenarios, said James Dearborn, director of municipal research with Columbia Management Group.

"It doesn't mean that the state's problems are over," Dearborn said. "But it means you won't face a liquidity crisis in June."

But even if the voters do reject the bond measure, Dearborn added, it's likely that bond buyers will still flock to buy the California bonds because the state may have to increase the return, or yield, to attract buyers. In that case, California's negative fiscal condition can be a positive for investors.

"There's a strong belief that the state of California will be here in 10 years in one form or another," said Dearborn. "(A buyer) is trying to find the place at which the sentiment is the most negative, and then it's an opportunity to buy."