Fitch Ratings downgraded California's general obligation bond rating Thursday due to concerns about the state's economy and ongoing budget problems, likely raising costs for taxpayers and dampening demand for $4 billion in bonds the state intends to sell next week.
California's bond rating now ranks lowest among the 50 states, according to Fitch. The announcement came days before State Treasurer Bill Lockyer plans a bond sale starting next Wednesday to replenish the state's Pooled Money Investment Account and enable the state to begin paying out $500 million to projects that desperately need public funding to continue.
Lockyer spokesman Tom Dresslar on Thursday used strong language to criticize ratings agencies for their downgrades.
"The ratings agencies have no credibility," Dresslar said. "They colluded with AIG and other titans of finance, and now they're screwing California taxpayers for a problem they helped create. We're going to sell $4 billion in California bonds next week and get the best possible deal for taxpayers, regardless of what they think of our creditworthiness. We've never defaulted on our bonds and no investor has ever failed to get what was owed to them on general-obligation bonds."
Fitch Ratings downgraded California's general-obligation bond rating from A+ to A, which likely means the state will have to offer more attractive rates and could preclude some investors from purchasing the bonds, said Alex Anderson, portfolio manager of Los Angeles-based Envision Capital Management. Fitch had California on a negative ratings watch since early last year.
State lawmakers and Gov. Arnold Schwarzenegger enacted a budget package in February that resolved most of the state's then-projected $40 billion budget deficit. But the economy has since turned worse, and the nonpartisan Legislative Analyst's Office estimated last week that the state is facing a new $8 billion budget gap. And if voters reject three ballot measures in May, the state would face an additional $6 billion hole.
"There's still uncertainty about the budgetary outlook," said Douglas Offerman, senior director at Fitch Ratings. "The solution they came up with in February was very significant. We appreciate that the state developed more than $42 billion in solutions more than four months before the start of the next fiscal year. But we're concerned that the revenue outlook continues to be very uncertain."
After freezing state bond funds for thousands of construction projects in December, the state Pooled Money Investment Board on Wednesday entertained the idea of releasing $500 million in April, contingent on the success of Lockyer's $4 billion bond sale. Advocates for environmental groups, local governments and affordable housing testified that their projects could fail without an infusion of state money.
Standard & Poor's Ratings Services maintained a similar A rating Thursday for California's general-obligation bonds. The ratings agency downgraded California's rating from A+ in February.
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