SAN FRANCISCO — Citing the risk that continuing budget gridlock could impact the state’s ability to pay its creditors, Moody’s Investors Service downgraded California to Baa1 from A2 late Tuesday afternoon, while keeping the rating on watch list for possible downgrade.

The downgrade stems from the inability of the state’s leadership to agree on actions to close a $26 billion budget deficit, combined with the state having already begun issuing IOUs to some creditors, according to a Moody’s news release.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.