California Bond Rating Lowered : Finances: A Wall Street agency becomes the second to downgrade state’s credit status. The action could increase the amount of interest paid on debt.

For the second time in two months, a major Wall Street credit agency has downgraded California’s bond rating, citing the state’s unstable short-term fiscal picture and the long-term challenge of serving a rapidly growing population.

Moody’s Investors Service on Monday lowered the state’s credit rating from AAA to AA-1, an action known in the financial markets as moving from triple-A to double-A.

The move follows a similar decision by Standard & Poor’s, which lowered the state’s credit rating on Dec. 13. A third major agency, Fitch’s Investor Service, is expected to issue its rating within a week.

The ratings are used by investment firms to figure the interest the state will have to pay when it borrows money over the long term, which it does by selling bonds. A lower rating means the state’s bonds are a riskier investment and generally leads to a higher interest rate.

State Treasurer Kathleen Brown, who will oversee a record $1.3-billion bond sale Feb. 19, said she was disappointed by the reduction.

Brown noted that the lower rating, if applied to $11 billion in bonds that she hopes to sell in the next three years, would cost the state an additional $4 million annually. The state’s general fund budget now is about $45 billion a year.

Moody’s attributed its decision to what it perceived as an “underlying imbalance” between the state government’s ongoing spending and the expected growth in tax revenues.

In a written statement, the agency also cited state and federal laws that limit the ability of the Legislature and the governor to reorder the state’s spending priorities.

“Given the ongoing and pent-up expenditure demands of its large and rapidly growing population (and) institutional constraints . . . the state’s finances are unlikely to exhibit the stable and predictable characteristics they once held,” Moody’s said.

State analysts believe that the government faces a $5-billion to $7-billion shortfall over the next 17 months and will run up budget deficits this year and next even if Gov. Pete Wilson’s proposed budget is enacted as he proposed it.

Wilson told reporters that he is disappointed in Moody’s action, but added: “It’s hardly a shock.”

He predicted that investors will continue to pay AAA interest rates for California bonds no matter how the rating agencies designate them.