Moody’s Investors Service has affirmed the A1 rating and stable outlook on California’s general obligation bonds with the expectation of an on-time budget.
In a report released Tuesday, Moody’s analyst Emily Raimes said the rating includes expectations that the state will pass a budget that mostly shuns one-time measures and comes in time to avoid a cash crisis.
“If, through the summer months, there is a budget impasse which results in a severely late budget, cash crunch, and the enactment of a structurally imbalanced budget, we may reconsider whether A1-stable is still appropriate,” Raimes said.
The agency said that while the worst is likely over for the state, weak finances may continue.
“That said, long-term economic prospects are good, and long-term liabilities … are moderate compared to many other states,” the report said.
It noted that California benefits from a large, diverse economy, a moderate debt burden, and a well-funded pension system.
But it also noted the state’s volatile tax and governance issues, specifically the Legislature’s limited influence on the budget and weak reserves stemming from the last recovery.
Gov. Jerry Brown’s proposed budget calls for $88.8 billion in general fund spending that would leave a $1.2 billion reserve at the close of fiscal 2012.
The new budget plan incorporates a $6.6 billion increase in the Department of Finance’s revenue forecast for combined fiscal 2011 and 2012. Even with the new revenue, the deficit now stands at $9.6 billion.
Brown’s budget assumes that lawmakers and voters will approve extending some temporary tax increases this year to close the remaining deficit, even though the Democratic governor was unable to persuade any Republican lawmakers to agree to the original proposal he made in January.
In 2009, Controller John Chiang issued IOUs after the state was unable to reach a budget agreement in time to go forward with its annual $10 billion revenue anticipation note sale.
