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Credit Rating Is Latest Worry for California Gov. Gray Davis vowed to resist a Republican budget plan that he said threatened education and public safety and said that a recall election to remove him would waste $30 million that would be better spent for pressing state needs. In brief remarks before he met with his budget advisers this afternoon, Mr. Davis said the Republican proposal would postpone kindergarten for more than 100,000 5-year-olds and deny college admission to tens of thousands of students. "My budget balances our books and still provides enough funding for education, public safety and health insurance for children," Mr. Davis said of his own plan, which raises taxes by $8 billion and cuts $18 billion from the budget. The Republican plan has no tax increases. But there was little hope that the budget stalemate would be resolved in coming days, and there were predictions that the situation could drag on through the summer, as it did last year. In the meantime, supporters of the effort to recall Mr. Davis were canvassing holiday picnics and parades to gather the 900,000 signatures needed to put the recall question to voters in the fall. Two major credit-rating agencies, alarmed by California's continuing political and fiscal trauma, said this week that they were considering further lowering the state's credit rating, already the worst in the nation. Such a move would significantly raise the state's cost of borrowing and make potential investors wary about purchasing California public debt at a time when it appears that the state will have to turn to the markets to help pay its bills. California's estimated $38.2 billion shortfall over the last and current fiscal years is larger than the annual budget of every other state except New York. The State Assembly is scheduled to meet on Sunday to consider a Republican budget plan that includes the proposal to save money by delaying entrance to kindergarten for more than 100,000 5-year-olds. The large Democratic majority in the Assembly is expected to reject it. The nationwide economic slump has strained the finances of more than half the states, several of which are operating on short-term budgets and seeking tax increases and spending cuts to cover operating deficits. The credit-rating agencies have listed more than a dozen states as having a negative outlook for the medium term, meaning that a rating cut is not imminent but that economic developments are worrisome. Moody's Investors Service downgraded Connecticut one notch this week, but the state's credit rating remains relatively healthy. But California, by nature of its huge deficit and its political deadlock, is in a class by itself. Moody's and Standard & Poor's, citing the budget stalemate and the recall movement, placed the state on their watch lists for possible downgrade in the next 90 days. Moody's rates California debt at A2, the lowest rating among the 50 states, along with New York and Louisiana. Standard & Poor's, which uses a different nomenclature, rates California debt at A, the lowest of any state. The third major bond-rating house, Fitch Ratings, has three states on its list for possible imminent downgrade: California, New Jersey and Wisconsin. Analysts at Moody's and Standard & Poor's said this week that political instability caused by the recall movement was exacerbating the fiscal problem. Recall proponents say they have submitted nearly one million signatures to election officials and are continuing to gather more.
The bond analysts said Wall Street was growing increasingly worried about the state's ability to resolve its crisis and meet
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