 |
 -0 |
 |
|
||||||||
 |
||||||||
 |
||||||||
|
||||||||
|
||||||||
 |
|
2 firms consider lowering state's credit rating Standard & Poor's Rating Services and Moody's Investor Services both announced that they are reviewing California's credit rating, which is already the lowest of all states. Moody's took the dimmest view of a "prolonged delay" in reaching a budget agreement and warned that its review could drop California from A2 to "the Baa category," that is, regarded as junk-bond status. Davis said that if Moody's drops California to junk-bond status and is joined by one other rating service in doing so, the state will have to pay a $33 million penalty to eight banks that recently guaranteed an $11 billion loan. The governor said a junk-bond rating would reduce the market value of bonds issued not only by the state, but also by its cities and counties, by "somewhere on the order of 15 to 25 percent." "That is unfair," Davis said. "We are here to solve problems, not create them, and inaction this year is increasingly going to exact a higher cost." Davis said bankers told state officials yesterday that if there is no budget by July 15, a $3 billion loan needed by the state in late August or early September may be delayed. That is when the state is expected to run short of cash again, even though an $11 billion loan was obtained in June. Much of that money was needed to pay off a previous $12 billion loan obtained last fall. The state has been without a budget since the new fiscal year began Tuesday. Republicans are opposed to any tax increase, but Democrats are demanding a "balanced" solution that includes tax increases and spending cuts. Though Democrats hold the majority in the Legislature, they need at least some Republican votes to pass a budget. A complicated sales tax-swap plan that surfaced earlier this week drew no support yesterday from Senate President Pro Tempore John Burton, D-San Francisco, and Assembly Speaker Herb Wesson, D-San Francisco. The plan would lower local government's share of the sales tax by a quarter-cent or a half-cent on the dollar, and then the state's share would be raised by a similar amount to pay off a $10.7 billion deficit-reduction bond. Local government's loss would be replaced by property-tax revenue now going to schools, and the state general fund would repay the schools for the lost revenue. Advocates of what some call the "flip-flop" plan say the advantage is that it entails no tax increase for consumers and creates a dedicated revenue stream demanded by Wall Street to pay off the bond. But general fund spending apparently would have to be cut $1.2 billion to $2.4 billion, depending on whether the deficit bond is paid off by a quarter-cent of the sales tax over 10 years or a half-cent over five years. "It's a novel concept," Burton said, "but there are a lot of questions about it in our caucus." Wesson said of Assembly Democrats: "I don't believe this caucus at this time would be supportive of the flip-flop proposal."
--------------------------------------------------------------------------------
Ed Mendel: ed.mendel@uniontrib.com
|
|
|
