February 3, 2009

S&P cuts California credit rating

California had its credit rating reduced Tuesday, making the Golden State the worst credit risk of all 50 states, analysts say.

Credit rating company Standard & Poor's cut California's rating on the state's debt because of the impasse between the state Legislature and Gov. Arnold Schwarzenegger over how to close a budget gap, estimated at $42 billion through fiscal 2010.

S&P lowered its rating on the state's $46 billion in general obligation bonds to A from A-plus, citing the state's inability to reach an agreement on a midyear budget revision and its rapidly eroding cash position, the Los Angeles Times reported Tuesday.

At its current level, the rating generally recognizes our view of the lack of political progress around the budget negotiations that we believe is serving to exacerbate the state's current and projected cash position, S&P said.

Most states are rated either AA or AAA, the newspaper noted.

Meanwhile, Moody's Investors Service, still has California tied with Louisiana for the lowest credit rating among the states, at A1.

A lower credit rating can lead investors to demand higher interest rates on new bonds the state sells for such things as infrastructure projects.