3rd Agency Lowers State Bond Rating

The third of three major rating agencies downgraded California’s credit-worthiness Friday after concluding that a chronic budget shortfall has diminished the security of the state’s bonds.

Fitch Financial Services lowered the state’s bond rating from AAA to AA+, joining Standard & Poor’s and Moody’s in expressing less confidence in California’s fiscal future.

A statement released by the investment firm noted that tax revenues are expected to fall short of meeting anticipated expenditures for the current fiscal year and the year beginning July 1.

“Recovery, not expected until at least mid-1992, is likely to be only moderate, unlike earlier recovery periods, hampering the opportunity for revenues to increase rapidly enough to enable the state to grow out of its financial problems,” the statement said.

A lower bond rating usually results in the state paying higher interest on the bonds it sells. But because two other agencies had already downgraded California’s bonds, the effect of Fitch’s action should be negligible.

State Treasurer Kathleen Brown said she was disappointed but noted that Fitch’s did not lower the state’s rating all the way to AA. Moody’s also left the state’s rating a notch above AA, lowering it from AAA to AA1.