One of the nation's leading bond-rating agencies upgraded its outlook for California's finances Thursday after Gov. Jerry Brown signed a rare on-time budget in time for the start of the new fiscal year.
Standard & Poor's revised California's long-term ratings outlook from negative to stable. The agency said most of the provisions of the new budget are largely realistic, although it says California's longer-term financial prospects depend on a continuing rise in tax revenue, primarily from the wealthy.
California currently has the lowest credit rating among the 50 states. S&P affirmed the state's general obligation bonds rating at "A-", which is six notches below the best possible rating, but hinted that the rating could improve if revenues continue to climb.
"In addition to the revised outlook, the fiscal 2012 budget introduces the possibility of a higher rating if certain features of the budget perform as the state plans and lead to procedures that could reduce the state's vulnerabilities to its revenue volatility," the agency wrote.
A stable outlook should help the state get better interest rates when it borrows about $5 billion in short-term loans next month.
"S&P's action confirms our view that this budget takes a significant step forward in putting California's fiscal house back in order," said Tom Dresslar, spokesman for state Treasurer Bill Lockyer.
On June 30, Brown, a Democrat, signed an $86 billion state budget that enacted service cuts but assumed optimistic revenue projections. Majority Democrats passed the budget alone after negotiations with Republicans for temporary tax extensions failed.
S&P noted that the state failed to achieve meaningful fiscal reform and instead delayed payments for schools.
"Instead of chipping away at the state's large, $34.7 billion in budget obligations as the governor had proposed in the May revised budget, the enacted budget proceeds with the earlier plans to defer to fiscal 2013 $2.2 billion in education payments attributable to fiscal 2012," the report stated.