A day after voters passed Proposition 2, which creates a “rainy day fund” to cushion the state budget from future economic downturns, major credit-rating house Standard & Poor’s on Wednesday upgraded California’s general obligation bond rating.
S&P raised the state’s credit rating from A to A-plus, citing the stability offered by Proposition 2.
“The upgrades follow voter approval on Nov. 4, 2014, of a strengthened budget stabilization account under Proposition 2,” S&P analyst David Hitchcock said in a statement. “In our view, the new state constitutional provision will partially mitigate California's volatile revenue structure by setting aside windfall revenue for use during periods when state tax revenue could fall materially short of forecast.”
Proposition 2, championed by Gov. Jerry Brown and passed by the Legislature on a bipartisan vote, requires the state to set aside funds, especially when revenue from taxes on capital gains is high, to both pay down debt and create a reserve that can be tapped only when the state is in fiscal distress.