Prop. 2 victory upgrades CA credit
It has yet to be seen whether voter passage of Proposition 2 actually will improve California’s “rainy day fund.” Or whether it will go the way of Proposition 58 in 2004. The latter was then-new Gov. Arnold Schwarzenegger’s attempt to control state spending. Like everything else in his administration, it was an abysmal failure, with Arnold himself “terminating” the budget the next year with massive, record spending increases.
But for now, Prop. 2 is faring better, with a nod of approval from Wall Street. According to KPCC, “Standard & Poor’s Ratings Services has upgraded California’s credit rating a day after voters approved changes to the state’s rainy day fund. The agency raised the credit rating from ‘A” to ‘A+’ on California’s general obligation debt Wednesday.”
However, that shouldn’t green-light another Arnoldesque spending binge. Only New York and New Jersey — two other high-tax, high-regulation, wild spending states — have worse credit ratings.
According to the site of outgoing Treasurer Bill Lockyer, the last time California was raised to “A+” was in 2006, just before the global economic crash laid bare Schwarzenegger’s profligate ways by producing $20 billion-plus state deficits. The deficits downgraded the state in 2009 to “A.” In 2010, as Arnold finally was getting ready to leave office, the downgrade continued, to “A-.”
Things started getting better, back up to “A,” only in 2013.
According to Standard & Poor’s definition of both “A” and “A+”: “An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.”
In other words, another economic calamity could bring back the $20 billion-plus deficits, draining even the newer, better rainy-day fund pronto. But the state’s ability to pay back the bonds remains high because its ability to tax even more of the stuffing out of its inmates remains strong.
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