| S&P January 16, 2008
NEW YORK Jan. 16, 2008--Standard & Poor's Ratings Services said today the GO rating of 'A+/Stable' on California is not immediately affected by Gov. Arnold Schwarzenegger's projection of a significant budget gap in his proposed fiscal 2009 budget for the state.
At the current level, relatively low for a state, the rating already anticipates cyclical budget pressures, Standard & Poor's said in a commentary, "California's Proposed Budget: Enough Pain To Go Around But No Immediate Crisis."
From a credit perspective, the most important element of the budget proposal is the estimated general fund reserve deficit of $3.3 billion, or about 3.2% of general fund expenditures, for the fiscal year ending June 30, 2008. However, the state expects to close this deficit with proceeds from the sale next month of deficit bonds. This would put the general fund balance in a net even position even without proposed midyear cuts.
"Unlike the state's fiscal crises in 2002-2004, so far there is no immediate liquidity crisis or plan to carry notes across fiscal years," said Standard & Poor's credit analyst David Hitchcock. The state projects no major cash concerns until July, when a late budget could create pressure, absent proposed delays in payments to local governments or issuance by the controller of interim revenue anticipation warrants.
Proposed budget balancing measures call for significant cuts in state expenditures, as well as large cutbacks in aid to school districts and local governments. "These measures may prove problematic in the legislature," said Mr. Hitchcock.
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