LOS ANGELES — California's forecast of strong revenue growth is a credit positive for both state and local governments, according to a Moody's Investor Service report.
The $115 billion general fund budget the state legislature passed for fiscal year 2015 uses recent increases in revenues to pay down debt and build reserves, both credit-positive developments for the state, Moody's analysts wrote in the June 25 report.
The budget also increases spending for schools, drought relief and social services, which is also credit positive for its local governments, according to the rating agency.
California lawmakers were able to pass a significantly larger budget for fiscal 2016 than the $107.9 billion in approved in 2015 and still keep expenditures to a modest 0.8% growth over the 2015 level, because of the boost in revenues.
The three major general fund tax revenues, personal income taxes, sales and use taxes, and corporate taxes, grew at a very healthy 7.7% over the course of the year, Moody's analysts wrote.
The state currently projects that these same revenues will grow at a more moderate 4% in fiscal 2016. The state has dedicated more than $3 billion to pay down debt and build its Rainy Day Fund to better protect it from revenue declines.
"The approved budget provides $992 million to eliminate all remaining K-14 payment deferrals and marks the first year since 2000-01 that the state is prepared to make all K-14 payments on time," Moody's analysts said. "Also, these onetime, catch-up expenditures insulate the state's general fund against unexpected declines in revenues and protect schools against the likelihood that the state may be forced to renege on its commitments in the future."
