Feb 4 Governor Jerry Brown's proposed budget
reflects a "significant improvement" in California's finances,
but the state still faces the challenge of highly volatile
revenue, Moody's Investors Service said on Monday.
Moody's is holding California's debt at A1 with a stable
outlook, while Standard & Poor's upgraded the state on Thursday
to A with a stable outlook, from A-minus with a positive
"The state's improving economy, combined with recent tax
increases and spending controls, has put the state on a path to
large surpluses, although one that is typical of the
boom-and-bust revenue and economic cycles of California,"
Moody's senior credit officer Emily Raimes said in a statement.
Brown last month unveiled a spending plan for the fiscal
year beginning in July that would swing the state's budget, long
plagued by shortfalls, to surpluses in coming years.
The plan relies on strengthening revenue from the economic
recovery and tax increases approved by voters in November, along
with an agreement by lawmakers to restrain spending.
Brown called on fellow Democrats, who control the
legislature, to embrace fiscal discipline and set aside plans to
reverse many of the deep spending cuts he pressed them to make
over the past two years to balance the state's budget.
The governor also proposed paying down billions of dollars
in internal borrowing and payment deferrals that the state
employed over the past decade to help balance its books. That
would limit California's ability to build reserves.
"For the last few fiscal years, California has balanced its
budget with one-time solutions like deferring payments from one
fiscal year to the next," said Raimes. "This means future
surpluses will be needed for reducing the deferrals and getting
back to balance."
Moody's said it sees additional risks to California's
positive financial position from federal deficit reduction
efforts, an economic downturn and the state's "abandoning the
fiscal conservatism it has displayed over the past two years."