LOS ANGELES -- Gov. Jerry Brown's budget proposal for fiscal 2015, released Jan. 9, is another solid step toward fiscal recovery for California, according to a recent report from Fitch Ratings.
The agency said it believes that the proposal sets out a "reasonable and prudent course to further strengthen California's financial condition" as the state continues to repair the remaining damage from two severe fiscal crises over the last decade.
"In Fitch's view, the governor's proposed budget is consistent with the last three adopted budgets, which also prioritized shoring up the state's finances, including through prudent control of spending and budgetary debt repayment," Douglas Offerman, senior director at Fitch Ratings, wrote in the Jan. 14 report.
In the past three years, the state has taken a disciplined approach to limiting spending growth, Fitch said. That, along with gradual economic and revenue gains, and voter approval in 2012 of temporary personal income and sales tax increases, enabled the state to move toward structural balance while paying down its debt.
These factors contributed to Fitch's upgrade of the state's general obligation bonds to A from A-minus in August.
"The governor's budget proposal assumes continued slow economic recovery and steady revenue gains through fiscal 2015, while emphasizing the uncertainty that is inherent in California's volatile tax revenue system," Offerman wrote.
He added that plan is wise to reject restoring the deep spending cuts made since fiscal 2011, repay an additional $11.8 billion of budgetary debt, leave a small, $1.6 billion cumulative general fund balance and deposit $1.6 billion to the state's rainy day fund, the first deposit since fiscal 2008.
Despite the state's fiscal improvement, it has yet to fully recover from the effects of the two fiscal crises, Fitch said. At the end of fiscal 2015, the state projects having $13.1 billion in unrepaid budgetary borrowing. Multiple long-term fiscal challenges will still require the state's attention and resources, most notably addressing the underfunding of teacher pension contributions.
"Nonetheless, Fitch considers the state's budget proposal to be another solid step toward fiscal recovery," Offerman said.
