Fitch Ratings assigns an 'A-' rating to approximately
$1.2 billion State of California various purpose general obligation
(GO) and GO refunding bonds selling competitively on June 16. In
addition, Fitch affirms the ratings of $47 billion of outstanding
California GO bonds, as listed below.
The ratings reflect California's improved economic performance and growing revenues, as well as the continuing effects of structurally imbalanced financial operations. Debt levels are moderate.
One-time capital gains and tax amnesty revenues made possible the recent reduction of near-term plans for deficit borrowing. Nevertheless, this reduction provides a foundation for improvement of the state's credit. The governor's May revision of his fiscal 2006 budget proposal provides for no new deficit borrowing for fiscal 2006, preservation of this borrowing capacity for later years, repayment of half of vehicle license fee revenues to local governments a year earlier than scheduled, and allowing all motor fuel taxes to be used for transportation.
The governor's proposal, however, leaves a sizable budget gap estimated at $4 billion-$5 billion, or 5%-6% of revenues, to be addressed in each of the next two fiscal years. Alternative budget proposals increase education spending by an added $3 billion over two years. Some proposals for increased taxes, generally opposed by the governor, also have been introduced. Meanwhile, voters will consider several initiatives at a November 8 election, including one that would strengthen the governor's power to reduce spending in response to midyear revenue shortfalls and further limit spending growth.
California's economy now shows moderate growth in most regions of the state, including northern California, which bore the brunt of the 2001 recession. Between April 2004 and April 2005, employment grew by 1.8%, slightly faster than the U.S., as unemployment declined to 5.4%. As of April 2005 the state finally has regained the number of jobs lost during the period beginning in March 2001. While some data show that the pronounced run-up in housing prices is softening, the state's economy is being aided by a sharp growth in exports, up 17% in 2004, including a 25% increase in exports to China. The budget reasonably projects 5.6% personal income growth and 1.6% employment growth in 2005.
Net tax-supported debt totals $53.7 billion, or 4.3% of personal income. While moderate, debt levels have increased significantly in recent years.
The various purpose GO bonds are expected to mature June 1, 2006-2035, and the GO refunding bonds are expected to mature June 1, 2006-2029. Bonds are callable beginning June 1, 2015.
Fitch affirms the following underlying or unenhanced ratings of outstanding State of California debt:
-$35 billion GO bonds at 'A-';
-$1.4 billion veterans GO bonds at 'A';
-$10.9 billion GO economic recovery bonds at 'A+'.
Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.
The ratings reflect California's improved economic performance and growing revenues, as well as the continuing effects of structurally imbalanced financial operations. Debt levels are moderate.
One-time capital gains and tax amnesty revenues made possible the recent reduction of near-term plans for deficit borrowing. Nevertheless, this reduction provides a foundation for improvement of the state's credit. The governor's May revision of his fiscal 2006 budget proposal provides for no new deficit borrowing for fiscal 2006, preservation of this borrowing capacity for later years, repayment of half of vehicle license fee revenues to local governments a year earlier than scheduled, and allowing all motor fuel taxes to be used for transportation.
The governor's proposal, however, leaves a sizable budget gap estimated at $4 billion-$5 billion, or 5%-6% of revenues, to be addressed in each of the next two fiscal years. Alternative budget proposals increase education spending by an added $3 billion over two years. Some proposals for increased taxes, generally opposed by the governor, also have been introduced. Meanwhile, voters will consider several initiatives at a November 8 election, including one that would strengthen the governor's power to reduce spending in response to midyear revenue shortfalls and further limit spending growth.
California's economy now shows moderate growth in most regions of the state, including northern California, which bore the brunt of the 2001 recession. Between April 2004 and April 2005, employment grew by 1.8%, slightly faster than the U.S., as unemployment declined to 5.4%. As of April 2005 the state finally has regained the number of jobs lost during the period beginning in March 2001. While some data show that the pronounced run-up in housing prices is softening, the state's economy is being aided by a sharp growth in exports, up 17% in 2004, including a 25% increase in exports to China. The budget reasonably projects 5.6% personal income growth and 1.6% employment growth in 2005.
Net tax-supported debt totals $53.7 billion, or 4.3% of personal income. While moderate, debt levels have increased significantly in recent years.
The various purpose GO bonds are expected to mature June 1, 2006-2035, and the GO refunding bonds are expected to mature June 1, 2006-2029. Bonds are callable beginning June 1, 2015.
Fitch affirms the following underlying or unenhanced ratings of outstanding State of California debt:
-$35 billion GO bonds at 'A-';
-$1.4 billion veterans GO bonds at 'A';
-$10.9 billion GO economic recovery bonds at 'A+'.
Fitch's rating definitions are available on the agency's public web site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.
© 2005 Business Wire
