SAN FRANCISCO - California's continuing budget woes, and its pending need for an unprecedented cash-flow borrowing, could threaten the state's A2 rating from Moody's Investors Service, according to a special comment the agency released yesterday.

The comment, written by analyst Emily Raimes, comes in the wake of last week's report from the California Legislative Analyst's Office, projecting that the state will need a cash-flow borrowing for fiscal 2010 of at least $17 billion, and as high as $23 billion if the budget-related measures on the state's May 19 special election ballot fail, as public opinion pollsters are predicting.

Moody's downgraded California to A2 from A1 in March, an action that came after the LAO predicted that the fiscal 2010 budget was likely to be $8 billion out of balance, despite $40 billion in tax hikes, spending cuts, and deferrals lawmakers had enacted in February. Moody's assigns a stable outlook.

"If the revenue and economic picture continue to decline, if the ballot measures do not pass, and if the Legislature takes no action to raise revenues or decrease expenditures, the state may be in the position in the early months of fiscal 2010 of having to issue a very large short-term borrowing," the Moody's comment said. "How large it is, and whether it can be repaid within the fiscal year, will be of crucial importance as we assess the strength of the credit at the current rating level."

The February budget package of cuts and tax hikes took weeks of negotiations to attain the required two-thirds votes in each house.

It may not be much easier to attain billions of dollars more in budget solutions, particularly after the minority Republicans overthrew their party leaders in both chambers for compromising too much in the February budget negotiations.

Gov. Arnold Schwarzenegger yesterday said that he plans to release two versions of his May budget proposal on Thursday: one that presumes all next week's ballot measures pass, and another, harsher proposal that would be needed if they fail.

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