California budget gets positive report from S&P -- with caveats

SACRAMENTO -- A Wall Street ratings agency gave California’s new spending plan a thumbs up on Monday while also expressing concerns about the state’s debt and its politicized budget process.

Gov. Jerry Brown reached a budget deal with Democratic lawmakers by reducing debt repayments and tweaking his tax estimates to make room for more spending on social services and other programs.

“By enacting even small new ongoing spending commitments this year . . . we detect a softening of resolve when it comes to paying down the internal debts,” said the report from the ratings agency Standard & Poor’s.

The agency said it will be watching closely to see what the state does with any extra tax revenue generated over the next year.

The final budget, which takes effect Monday, is somewhat weaker than the proposal Brown released in May, according to Standard & Poor’s.

This year’s negotiations, the report said, were a reminder of “one of the weaker elements of California’s financial institutions.” While half of the states allow independent analysts to set tax revenue estimates, California’s final numbers are subject to political negotiations between the governor and lawmakers.

Brown was able to convince lawmakers to use his more conservative estimates for income taxes, the biggest point of contention. But he changed his property tax projection, freeing up almost $300 million in the budget.

Overall, Standard & Poor’s said, California’s finances are in much better shape.

“Largely free from public political rancor, the ease with which the Legislature and governor came to terms over the fiscal 2014 budget reflects the state’s improved fiscal setting,” the report said.

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Twitter: @chrismegerian