http://www.bloomberg.com/apps/news?pid=20601087&sid=aWZVPoCgfaG0July 15 (Bloomberg) -- California’s credit rating, the lowest among U.S. states, was cut for the second time in as many weeks as lawmakers and Governor Arnold Schwarzenegger met behind closed doors to resolve a ballooning budget deficit that left the state paying bills with IOUs.
Moody’s Investors Service yesterday lowered California’s credit rating two steps to Baa1 from A2 and said its evaluation may be reduced further unless legislators quickly solve the cash crisis. The announcement was made as Schwarzenegger retreated to his Sacramento office with legislative leaders, who expressed optimism that they were closing in on a solution to the $26 billion deficit.
“The political showdown continues to wreck California’s reputation and push taxpayers deeper and deeper into the hole,” Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said in a telephone interview.
California this month began issuing IOUs to pay some of its creditors, a step taken only once before since the Great Depression, because of the stalemate over the gap in the $100 billion annual budget. Schwarzenegger and Republicans oppose tax increases, while Democrats, who control both chambers of the state legislature, reject deep spending reductions that would eliminate entire welfare programs. Democrats lack the votes to reach the two-thirds majority needed to enact any solution immediately.
The Moody’s action affects about $72 billion of general obligation and lease-supported bonds. Moody’s at the same time also lowered its rating on the state’s taxable bonds and debt sold for stem cell research, to A2 from Aa3. The new grade is three levels above non-investment grade.
