Bangkok--8 Jul--Standard & Poor's
Standard & Poor's Ratings Services revised its outlook to stable from negative on all its ratings for California. The negative outlook had been linked to the possibility of a recurring cash deficiency that we now believe the enactment of the fiscal 2012 budget is likely to mitigate for the most part. Because the state has improved the structural alignment between its recurring revenues and expenditures, we now view the state's rating outlook as stable through the two-year outlook horizon.
In addition, we affirmed our 'A-' long-term and underlying ratings on California's general obligation (GO) debt. Simultaneously, we affirmed the 'A-' and 'BBB+' long-term and underlying ratings on the state's Proposition 1A and appropriation-backed debt.
"We believe the enacted budget makes a lot of progress in improving the state's fiscal structure and should reduce the risk to its liquidity. Most of the solutions employed to achieve budget balance are largely realistic and should clear a path for the state to issue its revenue anticipation notes, thereby helping maintain adequate operating liquidity for the 2012 fiscal year," said Standard & Poor's credit analyst Gabriel Petek. "The enacted budget nonetheless represents a bit of a missed opportunity, in our view. The budget does not address the state's backlog of budget obligation accumulated during the past decade of non-structural responses to prior budget solutions. Furthermore, whether the budget will remain in-balance through the end of fiscal 2012 rests on the continued favorable performance of state tax revenues and on the deficit-reducing efficacy of some of the adopted solutions," added Mr. Petek.
The rating continues to reflect our view of:
- The state's large and diverse economic base with strong underlying long-term fundamentals that can produce strong tax revenue growth;
- Governance rules that at times contributes to delayed and suboptimal fiscal decision making; and
- Large debt, retirement benefit, and budgetary liabilities, the repayment of which will siphon future state resources and, in the case of the latter set of obligations, add nothing to the state's asset base or infrastructure.
On June 30, 2011, Governor Jerry Brown signed into law the state's $129.5 billion budget for fiscal 2012. Of this, the state's general fund represents $85.9 billion, provides for a $543 million ending general fund reserve, and closes a budget gap that had been projected to be as large as $26.6 billion through the end of fiscal 2012. Major spending reductions of more than $15 billion make up the largest category of solutions and reduce general fund spending to its lowest level since 1973 as a percent of total personal income in the state.
RELATED CRITERIA AND RESEARCH
- USPF Criteria: State Ratings Methodology, Jan. 3, 2011
- USPF Criteria: Appropriation-Backed Obligations, June 13, 2007
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
Media Contact:
Edward Sweeney, New York (1) 212-438-6634,
[email protected]
Analyst Contacts:
Gabriel Petek, CFA, San Francisco (1) 415-371-5042
David G Hitchcock, New York (1) 212-438-2022