A major Wall Street firm lowered California's bond credit rating Friday, saying the tardy state budget approved by Gov. Pete Wilson and the Legislature contains a $1-billion "de facto deficit."
Fitch's Investors Service, one of the nation's three major credit-rating agencies, lowered the rating from AA+ to AA after a meeting at the state treasurer's office in Sacramento.
"The long-term outlook for California has declined as the recession continues to be deeper than expected and employment loss is very significant, even though the full impact of defense reductions is yet to be realized," Fitch said.
The budget was balanced, in part, by shifting school funds from one year to the next, a move that drew criticism from Fitch.
"Balance for 1992-93 has been sought largely through expenditure cuts but, even if the plan succeeds, there will be a de facto deficit from a loan of nearly $1 billion to school districts. . . ."
The Republican governor and the Democrat-controlled Legislature reached an agreement on a $57.4-billion budget Sept. 2, two months after the beginning of the state's fiscal year. The recession-era agreement, which included deep cuts in welfare and health care services, ended the longest fiscal impasse in the state's history.
California issued $3.6 billion worth of IOUs during the 64-day crisis, the first time state-backed IOUs had been issued during the Depression.
Two other credit-rating companies, Moody's and Standard & Poors, retained their previous ratings of AA and A+ respectively, but indicated that they would review the credit levels again next month.
"The credit-rating agencies clearly are concerned about the structure and integrity of the recent budget deal signed by the governor, particularly that it may fail to provide sufficient cash flow toward the end of the fiscal year," state Treasurer Kathleen Brown said.