Fitch Again Cuts Calif. Rating As Budget Battle Continues [two steps above junk] [may fall further]

Dow Jones / The Wall Street Journal ^ | 2009-07-06

[rabscuttle385]

Fitch Ratings cut California's long-term general obligation bond rating by two notches to BBB, the second cut on the rating since late June, based on the state's inability to achieve an agreement on its budget and cash flow solutions amid its severe financial crisis.

Legislators in the state have been deadlocked for more than a month on ways to close what is now a $26 billion deficit in a $92 billion general-fund budget. The state plans to issue a little over $3 billion in IOUs to thousands of creditors this month after lawmakers failed to come to an agreement on a way to close the massive budget deficit.

Republican Gov. Arnold Schwarzenegger and Democrats, who control the legislature, have been locked into a battle as to how to fix the state's budget problems. Schwarzenegger has sought deep cuts and some so-called revenue accelerations, while Democrats countered with a $21 billion proposal that includes $11 billion of cuts and relies more heavily on accounting gimmicks and one-time fixes.

Fitch also kept the ratings on watch for downgrade, after an agreement wasn't reached by the end of the state's fiscal year on June 30. The ratings short-term risk includes concerns that if gridlock between politicians continues, it would further aggravate the state's already severe economic, revenue and liquidity challenges and weigh on the state's credit.

The BBB rating, which is two notches above junk territory, indicates Fitch's view that default risk remains low, although the rating is well below that of most other tax-supported issuers. A handful of the state's appropriation bonds were downgraded to BBB- and put on watch for downgrade, including some building and financial authorities.

[April Lexington]

I'm beginning to wonder if I have been wrong. Maybe California and the US government CAN just keep borrowing forever. Why bother with taxes that so irritate taxpaying citizens? Abolish taxes! Just print and borrow the money you need and then spend it into the economy.

Eferyvon vill get rich, Ja! Und zen vee vill haf da perfect ekonomy, Ja! No more taxes und unlimited goferment spending, Ja?! Das perfect velt!

[April Lexington]

Editorial note. I was not mocking AHNOLD! I was attempting to sound like a 1920’s economist in Wiemar!

[Frantzie]

Corrupt money? ;-)