California's credit quality could improve with tax measure-S&P

SAN FRANCISCO Wed Nov 7, 2012 1:55pm EST

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SAN FRANCISCO Nov 7 (Reuters) - California's credit quality looks to improve after voters approved a measure on Tuesday that increases taxes to avoid education spending cuts in the near term and bolster the state's budget in coming years, Standard & Poor's Rating Services analysts said in a note on Wednesday.

"The measure does more than temporarily increase operating revenues and, in our view, is the linchpin to the governor's broader, multiyear strategy for reversing the state's negative budget position," the analysts said.

"By providing a temporary but significant boost in tax revenues and permanently lowering its general fund spending baseline, we believe Proposition 30 helps alleviate the state's chronic fiscal strain," the analysts added.

They said improvement in California's credit rating depends on whether its legislature will be able to enact substantive fiscal reforms now that it has additional revenue to stabilize the state's finances. S&P rates California's general obligation debt 'A-minus' with a positive outlook. The rating is lower than all other states other than Illinois.

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