Wall Street ratings agency Standard & Poor's handed California a favorable report Monday, replete with a pat on the back for Gov. Jerry Brown.
It's well-deserved praise. Brown's budgetary wheeling and dealing with state legislators has played a large role in pushing California into its best financial position in years.
The report, combined with new "A" rating that S&P handed out in January to California, could help improve investors' attitudes toward the Golden State.
Currently, the state pays out almost $5 billion a year from the general fund to pay interest on the state's debt obligations. Although it's hard to identify how far that number might move, it is clear that the state's general fund seems to be finding a more even keel and California's debt, if the current trend holds, will decline.
"There are so many variables that it's tough to do a straight-line projection," said H.D. Palmer, a spokesman for the Department of Finance.
Palmer added that the S&P assessment would likely improve the general fund's bottom line and put downward pressure on California bond interest rates.
This year's budget was passed on time by the Legislature and signed before the late-June deadline by Brown. It wasn't so long ago that an on-time budget in Sacramento was about as likely as a June rainstorm. Yet both happened this year.
New tax revenue generated by voter-approved income and sales tax increases in November, coupled with Brown's insistence that state lawmakers use conservative revenue estimates when drafting this year's budget, have put California in a healthy or healthier-than-usual financial state.
Now the major challenge is reducing unfunded liabilities, such as future health care costs for state employees and pension benefits for CalSTRS. Lawmakers and governor also must address the volatility of California's tax system and conflicting revenue estimates, a feature that the S&P report termed "one of the weaker elements of California's fiscal institutions."
With S&P's latest evaluation, California lawmakers should be careful not to loosen the state's purse strings too quickly. The goal should be to tack an extra "A" or two onto its rating in the years ahead.