Jan 31 - Standard & Poor's Ratings Services raised to 'A' from 'A-' the
long-term ratings and underlying ratings (SPURs) on California's $73.1 billion
in general obligation (GO) bonds and $1.9 billion in Proposition 1A bonds. We
simultaneously raised to 'A-' from 'BBB+' our long-term ratings and SPURs on the
state's $9.3 billion in appropriation-backed lease revenue bonds (excluding
$2.39 billion of lease revenue bonds, which were issued by the State Public
Works Board for Regents of the University of California projects). The outlook
is stable. Finally, we affirmed the 'AAA/A-1+' and 'AAA/A-1' ratings on some of
the state's GO variable-rate demand bonds. The long-term component of the
ratings is based jointly (assuming low correlation) on that of the obligor,
California, and the various letter of credit (LOC) providers. The short-term
component of the ratings is based solely on the ratings on the LOC providers.
"The upgrades reflect our view of California's improved fiscal condition and
cash position, and the state's projections of a structurally balanced budget
through at least the next several years," said Standard & Poor's credit analyst
Gabriel Petek. "As part of Governor Jerry Brown's recent budget proposal and
multiple-year plan, the state would also largely retire its backlog of payment
deferrals and internal loans. We view the alignment between revenues and
expenditures as much improved and largely a result of policymakers' heightened
emphasis on fixing the state's fiscal structure in the past two budgets. This
has primarily consisted of programmatic reductions and reforms designed to
generate budget savings because, until recently, strongly rebounding tax
collections have not accompanied the economic recovery. Now the economic
expansion is gaining positive momentum, however. In addition, the voters'
approval in November of temporarily higher statewide sales and personal income
tax rates positions the state to capitalize on burgeoning economic activity and
income gains. We believe these factors have worked in concert to help the state
reverse fiscal course," added Mr. Petek.
On a four-point scale in which '1' is the strongest, Standard & Poor's has
revised California's overall financial management score to 3.0 from 3.5 and its
budgetary performance score to 2.6 from 3.0. Standard & Poor's also changed the
state's debt and liability profile score to 3.6 from 3.5. The other scores are
unchanged from full analysis of Sept. 14, 2012.