* 'Restrained approach' sets stage for budget talks
* Economic clouds on the horizon
* Retiree health, pensions, revenue volatility still
May 16 The cautious view of California's revenue
in Governor Jerry Brown's revised budget plan is a good sign for
the state's near-term financial prospects but not enough to lift
its credit rating, Standard and Poor's Ratings Service said on
Credit implications for the government of the most populous
U.S. state from the new plan are "broadly similar" to those
spurred by Brown's initial budget proposal in January, the
report said. The governor's "restrained approach" to forecasting
revenue "helps set the overall tone for the coming weeks of
final budget negotiations."
Following Brown's January proposal, S&P raised its credit
rating on California's general obligation debt by one notch to A
with a stable outlook from A-minus with a positive outlook.
Restraint remains in order as California's "fiscal and cash
position continue to be stronger than at this point in 2012,
albeit with some economic clouds on the horizon," according to
The rating agency's report came two days after Brown
presented his revised budget plan for the fiscal year beginning
in July. It proposed general fund spending of $96.4 billion,
compared with $97.7 billion he proposed in his initial plan in
January and this year's $95.7 billion.
Brown's revised plan released on Tuesday assumes a
relatively tepid economy, reduced outlook for personal income
growth related to spending cuts by the federal government in
January and the effect of automatic federal cuts known as
California's revenue has jumped in recent months but the
surge may prove fleeting as gains may be largely due to
voter-approved tax hikes on the wealthy retroactive to last year
and capital gains from asset sales ahead of higher federal
income taxes that went into effect in January.
California relies heavily on revenue from personal income
taxes, especially from the often volatile income tax receipts of
its wealthiest taxpayers.
Brown was just as cautious in January when he presented his
initial budget plan. But in a surprise move he forecast
California's government could post surpluses due to improving
revenue and if the economy strengthens.
Lawmakers would also have to support his plans to continue
keeping spending in check to help the state end its long history
of budget gaps.
Brown's fellow Democrats control the legislature and have
grudgingly accepted steep spending cuts over the past two years.
Lawmakers face a mid-June deadline for approving a budget for
Brown to sign by the July 1 start of the new fiscal year.
S&P's report said Brown's revised budget plan shed more
light on some of his major policy initiatives - notably a plan
for a new approach to funding schools that has irked many
lawmakers - but did not take up matters that are holding down
the state's credit rating.
"Over the longer term, we continue to view the state's
unfunded retiree health care liability, less than actuarial
contributions to the teachers' retirement system, and volatile
revenue structure as potential impediments to a significantly
higher rating," the report said.