S&P CITES DEFICIT, SAYS GOVERNOR’S PLAN IS FLAWED

By Dale Kasler
dkasler@sacbee.com
Published: Thursday, Jan. 14, 2010 – 12:00 am | Page 6B

On the eve of another budget battle in the Legislature, California’s worst-in-the-nation credit rating took another hit Wednesday.

Standard & Poor’s Ratings Services downgraded California a notch to an “A-minus” rating, citing the $19.9 billion deficit and the “impending recurrence of a cash deficiency.”

Lower credit ratings can often translate into higher borrowing costs. The latest downgrade leaves California two notches below Illinois, the next lowest among the 50 states, said S&P analyst Gabriel Petek.

In its statement, S&P said Gov. Arnold Schwarzenegger is relying on “uncertain assumptions for major portions of the budget balancing proposal,” including his belief that California is in line for a $6.9 billion cash infusion from the federal government.

The day before, state Legislative Analyst Mac Taylor punched a hole through that assumption. He said the likelihood of California receiving $6.9 billion is “almost nonexistent.” Something closer to $3 billion is more like it, he said.

Still, the Republican governor pounced on the S&P announcement, saying the Legislature must act quickly on his proposal to cut the deficit by $8.9 billion in a special legislative session.

“S&P says that the absence of timely action could lower our rating even further,” said Department of Finance spokesman H.D. Palmer. If the Legislature waits until summer, about a quarter of those savings will vanish, he said.

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