Fitch Reduces California to an A- Rating

As John Chiang noted on the radio, Fitch has moved us down to an A- credit rating:

Fitch Ratings downgraded California’s general obligation credit rating on Thursday to A-minus from A, based on the magnitude of the state’s financial challenges and persistent weakening economy. The state’s finances will continue to be strained through fiscal year 2010 and beyond regardless of any likely outcome to the current budget impasse, Fitch analysts said in a report. The $69.4 billion in debt outstanding affected by the downgrade are also on Rating Watch Negative, reflecting short-term concerns about the state’s ability to solve its liquidity crisis, Fitch said. (Marketwatch 6/25/09)

We are now several ratings below every other state, and there is only one rating level between us and junk bond status.

That’s going to cost us big-time when we try to borrow money.  It’s unclear exactly how much, but it again brings up the question of a federal backstop that could save us over one billion dollars without costing the feds anything.  Of course, California isn’t particularly popular these days, but we really aren’t the only state that could use these federal loan guarantees. Other states, such as Arizona, need the help as well.

Until we actually solve both the short-term budget crisis and come up with a long-term reform program to put the state in a position of solid governance, we don’t really stand much a chance of upgrades.

2 thoughts on “Fitch Reduces California to an A- Rating”

  1. they didnt call him the terminator for nothing.

    terminating california as a workable entity.

  2. We aren’t allowed to default on our debt.  But we can “slow walk” our payment, and if we don’t have cash flow, we can’t pay.

    I know you and dday have been pushing the idea of back-stopping CA debt as “free” for the feds, but if California is not paying its debt back, there will be costs to the federal government.

    Fitch has lowered the state’s ratings for a very valid reason: if you buy the state’s debt, you really don’t know exactly what you’re getting.

Comments are closed.