Stable budget means California will pay less to borrow

by Brian Leubitz

For several years now, California has languished at the bottom of the barrel of the credit ratings of the states. However, today S&P upgraded our credit rating, leaving Illinois fully behind us. (Though that state had previously slipped behind us in Moody’s rating) Illinois is still facing some big issues as they struggle to pull themselves out of a similar morass as California experienced a few years ago.

Standard & Poor’s Ratings Services on Thursday raised California’s credit rating from “A-” to “A” the long-term ratings on much of California’s bond debt. The upgrade covers $73.1 billion in general obligation bonds and $1.9 billion in Proposition 1A bonds. …

The ratings agency’s commentary said 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.” (Sac Biz Journal)

That being said, our state was never really a threat to default. Our constitution specifically forbids it, and Bill Lockyer has pointed this out many, many times.

California has never failed to make its bond payments on time and in full, not even during the Depression. And there is no chance we will smudge that pristine record.

Payment of debt service is constitutionally protected, with bond payments required even when the state is operating without a budget. Debt service has second call on general fund dollars, right behind education. Under the California Constitution, making sure bond investors get their money is a higher priority than providing healthcare to kids, protecting the environment and keeping our communities safe.(LA Times)

These words are just as true now as when they were first published in 2010. Yet, hey, now we’re getting upgraded, so hooray?