California Debt Rating Falls to Just Above Junk
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California suffered a new setback in its financial crisis on Monday when Fitch Ratings cut its rating on the state’s general obligation debt to just two notches above junk status. Fitch cut its rating on California’s long-term bonds to “BBB,” two notches above speculative grade, citing the state’s budget and revenue crisis.
The state last week started issuing “IOU” promissory notes for some bills to conserve cash for priority payments, including payments to investors holding the state’s debt.
Lower ratings could raise California’s borrowing costs during a severe cash crunch in Sacramento, the state capital, where talks between Governor Arnold Schwarzenegger and lawmakers to plug a $26.3 billion budget deficit for the fiscal year that began on July 1 are plodding along.
In a statement, Fitch said it cut its “A-” rating due to the state’s “inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis.”
