LOS ANGELES —California could see its ratings jump to double-A levels this year if positive reports from rating agencies are any indication, according to a
"All of the ratings agencies' views on California have been positive," said Lisa Washburn, a managing director. "We are hearing about the positive actions California is taking relative to other states that aren't doing things to improve their fiscal management."
The state is already rated Aa3 by Moody's Investors Service, following a June 2014 upgrade. Fitch Ratings assigns California its A rating, and Standard & Poor's rates California A-plus.
"The improvement in their credit quality has been authentic," said MMA Partner Matt Fabian. "It is not just strong revenue improvement, but that they are making structural improvements."
California's problem in the past was that the state had a structurally unsound budget and used borrowing to patch over that, Fabian said.
Gov. Jerry Brown's administration has restored money borrowed during the recession, built up reserves and created a structure to limit the state's ability to borrow in the future, Fabian said.
While there is no guarantee the state will see the ratings boost, Washburn said the rating agencies usually converge on state ratings within a notch or two.
"A notch difference is reasonable, but a two notch difference is relatively rare unless there is a fundamental difference of opinion," Washburn said.
The state is exceeding revenues forecast for fiscal 2015 by 6.7%, lead by personal income taxes, which are outperforming the forecast by 7.1%, according to the report.
MMA called California the most improving state in its report.
New Jersey, Illinois and Puerto Rico are lagging their forecasts, according to the report. Texas, Arkansas and North Dakota are feeling the impact of low oil prices on revenues and budgets.
California's fiscal progress continues with a proposed fiscal 2016 budget that settles deferred payments, reduces debt, strengthens reserves and increases education funding, according to the report. It also cited the voter approval in November of Proposition 2, which mechanizes reserve building and debt repayment.
"We expect the state's debt to outperform the market again in 2015, although the upside may be limited because of its exceptional performance in the past few years," the report states.
