SAN FRANCISCO — California Treasurer Bill Lockyer Thursday afternoon urged lawmakers and the governor to make quick work of budget negotiations, saying that without quick action to balance the budget, the state is close to getting a junk-level downgrade.
“If our credit rating sinks to junk status, the state will find the door to the infrastructure bond market locked shut,” Lockyer said
This month, Fitch Ratings and Moody’s Investors Service downgraded California to triple-B levels — BBB and Baa1, respectively. Standard & Poor’s gives it an A rating.
With tax revenues contracting, the state faces an almost $26 billion general fund deficit for the current fiscal year, which began July 1.
Because of the budget crisis, and associated cash crunch, Controller John Chiang is issuing IOUs to many state creditors in order to preserve cash for those with legal priority, including bondholders.
Negotiations to solve the budget gap are in the hands of the so-called Big Five of Gov. Arnold Schwarzenegger and the four top-ranked legislative officials, two from each party.
Democratic Assembly Speaker Karen Bass and Senate President pro tempore Darrell Steinberg both said the negotiations stalled Wednesday night over the future application of the state funding formula for education.
Schwarzenegger has said he is no longer trying to get pension reform into the deal.
Lockyer’s statement, while addressed to the governor and all lawmakers, appeared directed at either spurring his fellow Democrats or giving them political cover.
“I ask them to stop devoting energy to any issue that does not directly relate to closing this year’s budget gap without adding to out-year liabilities,” the statement said. “Give Californians and the world a pleasant surprise, for once: Balance the budget now, and get back to the work of getting our state back to work.”
If they don’t, Lockyer said, the consequences would be dire.
“If we’re denied the ability to sell bonds, financing for infrastructure projects will cease,” he said. “It won’t slow. It will stop.”
That will leave thousands more Californians out of work and punish thousands of businesses, Lockyer said.
“The ripple effects will be felt by the state’s entire public finance program — not just infrastructure bonds, but commercial paper, variable-rate bonds, and other securities,” he said. “And the fallout will hit local governments. When the state drops to junk status, it undermines the creditworthiness of all government issuers in California.”
