California Credit Ratings Improving

Standard & Poor’s maintained an “A” rating on the general obligation debt, but revised California’s outlook to Positive from Stable. That is on over $75 billion worth of debt. The agency also put a positive outlook on the “A-” long-term rating of its appropriation backed debt such as public works.

S&P puts Governor Jerry Brown’s 2015 budget recommendation putting the state’s finances back to the best situation in years. Debt repayment and moving funds into reserves are both cited as key drivers. S&P even said that this could be consistent with higher credit ratings if implemented within the two-year outlook period.

Earlier on Tuesday, Fitch Ratings also addressed Governor Brown’s budget proposal for fiscal 2015 as setting a reasonable and prudent course to further strengthen California’s financial condition. Fitch went on to say that this proposed budget is consistent with the last three adopted budgets.

Gradual economic and revenue gains, limiting spending growth, and voter approval in 2012 of temporary personal income and sales tax increases have all enabled the state to move toward structural budget balance while repaying billions in past budgetary borrowing.

These factors contributed to Fitch’s August 2013 upgrade of the state’s general obligations rating to ‘A’ from ‘A-‘. Fitch did say,

“At the end of fiscal 2015, the state projects having $13.1 billion in unpaid budgetary borrowing, and multiple long-term fiscal challenges will still require the state’s attention and resources, notably, addressing the underfunding of teacher pension contributions. Nonetheless, Fitch considers the state’s budget proposal to be another solid step toward fiscal recovery.”

We would hardly view this as a model of success, but it is better credit news than what investors have been hearing for years now. Maybe California’s finances are not falling into the Pacific Ocean after all.