California's Credit Rating Hinges On Cash Management

jerry brown

California’s credit rating will likely depend on how the state handles its cash, rather than on any overall financial improvement, Standard & Poor’s said today.

The ratings agency announcement comes on the heels of news that budget talks have reached an impasse. Gov. Jerry Brown announced last night that he had broke off talks with Republican lawmakers over a proposal to let voters decide on a temporary tax extension. The tax measure is designed to help close the California’s $27 billion shortfall.

Via Reuters:

“Governor Jerry Brown’s announcement yesterday that the fiscal 2012 budget negotiations have reached an impasse suggests that our focus will remain trained on the state’s fundamental cash and liquidity position,” S&P said in a statement.

S&P added that its A-minus rating and negative outlook on California’s general obligation debt will over the near term be “characterised” more by the state government’s cash management than prospects for “structural improvement” in its finances as long as Brown’s budget plan is stalled.

“Extraordinary cash management actions such as certain payment deferrals or IOUs might in our view again prove critical to the state’s credit level if fiscal 2012 were to begin without a budget in place,” S&P said.

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