SAN FRANCISCO — Moody’s Investor’s Service late Wednesday put California’s A1 general obligation bond rating on watch for a possible downgrade, amid a worsening budget crisis that lawmakers have been unable to resolve since early November.
The agency also put on watch the state’s A2-rated lease and appropriation backed debt, along with its Aaa global scale rating for taxable stem cell bonds sold in 2007 and its Aa1 rating on judgment trust certificates of participation sold in 2005.
“These actions reflect the state’s significant budgetary shortfall, impending liquidity crisis, and lack of legislative solutions,” Moody’s said in a release.
The ratings actions affect some $67 billion in outstanding debt, the agency said.
Moody’s move follows Standard & Poor’s decision to put the biggest U.S. state’s A-plus GO rating on CreditWatch negative on Dec. 10. California faces a two-year, $40 billion budget deficit, and Controller John Chiang said he expects the state to face a cash flow crisis as soon as next month, when the amount of state bills coming due will exceed available cash.
Lawmakers have been negotiating to solve the crisis since the early November, but Republicans and Democrats have not been able to agree to a package of tax hikes or spending cuts that would balance the budget.
Republicans in the State Legislature do not want to raise taxes, while GOP Gov. Arnold Schwarzenegger and legislative Democrats want to impose both deep spending cuts and sharp tax increases to balance the budget.
“We do not yet know whether solutions will actually be passed, or whether they will be workable, reasonable, and of a sufficient magnitude to achieve a degree of credit stabilization consistent with the current rating level,” Moody’s said.