Fitch Revises California Outlook to Negative

SAN FRANCISCO — Fitch Ratings Friday revised its outlook to negative from stable on California general obligation bonds, while affirming the underlying A rating.

“The revision of the outlook to negative reflects growing concerns with the state’s widening budget and cash flow deficit,” the ratings agency said in a news release.

Fitch had downgraded California to A from A-plus in March, but the state’s general fund budget picture has continued to deteriorate. The state’s general fund revenue for fiscal 2009, which ends June 30, is expected to come in more than 16% below the previous year, according to Fitch.

Also on Friday afternoon, the state controller, John Chiang, released a letter to Gov. Arnold Schwarzenegger and state lawmakers urging immediate action on budget balancing measures to help avert a cash deficit that will hit $1 billion by the end of July and grow to $22 billion by April if no actions are taken.

“Despite anticipated mitigating measures, liquidity is likely to remain strained going forward, and capital market access for needed short-term borrowing is uncertain,” Fitch said in its news release Friday.

Chiang said he is working on a sale of revenue anticipation warrants to help ease the state’s cash crunch, and urged lawmakers to take action no later than June 15 to increase the odds of being able to complete a successful transaction.

“The state’s numerous fiscal and cash flow challenges through the upcoming budget year remain Fitch’s key credit concern,” the ratings agency said in its release.

All three ratings agencies have dropped California to the A rating level from the A-plus level this year. Moody’s Investors Service and Standard & Poor’s both assign stable outlooks.

 

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