SAN FRANCISCO – California’s finances are in the strongest position of any time in the last five years, Moody’s Investors Service said in a report Monday.

The report said Gov. Jerry Brown’s $98 billion general fund budget proposed to the legislature last month reflects the state’s improving financial profile.

“Unlike California’s budgets of recent years, which closed large gaps between revenues and spending with payment deferrals and other one-time measures, this proposed budget moves toward structural balance and reduces the level of payment deferrals,” Moody’s said. “The state’s fiscal future is not all rosy, however, as several challenges remain.”

Moody’s rates the state’s general obligation bonds A1.

Fitch Ratings has California at A-minus, and Standard & Poor’s Thursday raised the state’s GO rating to A from A-minus. All three assign a stable outlook.

Moody’s said California’s current upward revenue swing is typical of its past economic cycles, which move along with national economy because of its highly progressive tax structure.

“When the economy starts to trend downward, California’s revenues plunge. And then when the economy begins to pick up, California’s revenues surge,” the report said. “While the economic and budgetary news in California is good, it is not unexpected given the state’s revenue structure.”

Moody’s said the state still faces challenges, such as paying down what Brown has termed “the wall of debt,” which include payments that had been deferred during more difficult budgets and will need to be repaid through surpluses.

The report said California’s finances are also exposed to indirect risks, such as a reduction of federal transportation or Medicaid funding.

Another risk, according to Moody’s, is the legislature could ignore the governor’s proposed budget and recent conservatism and spend away anticipated surpluses.

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