State Bond Rating Is Raised by Fitch

Fitch Ratings on Tuesday raised by two levels its credit grade on $13 billion of California state bonds, following similar moves by its two major rivals in boosting their assessment of the state’s fiscal outlook.

Fitch lifted its rating on the state’s general obligation bonds to A- from BBB.

The announcement comes just before the state expects to sell $500 million in general obligation bonds to finance infrastructure projects. The sale is scheduled for Thursday.

Standard & Poor’s raised the bonds’ rating Aug. 24 to A from BBB. Moody’s Investors Service in May lifted its rating on the bonds to A3 from Baa1, the third lowest of 10 investment grades.

Since voters in March approved a $15-billion deficit-plugging bond issue promoted by Gov. Arnold Schwarzenegger, the yields on California general obligation bonds have fallen closer to those of top-rated municipal debt, indicating that investors perceive less risk in California than they did before.

The deficit bonds gave the state enough money to pay off $14 billion of short-term debt that matured in June and averted a cash shortage. Also, the state’s tax revenue for the year ended in June exceeded forecasts. The state still faces a budget deficit next year of $5 billion, one-third what it was for this year.

“The rating action reflects the state’s financial improvement from elimination of potential crisis through the successful issuance of deficit funding bonds, set against a backdrop of improving economic indicators and revenue matching estimates,” Fitch said in a statement.