Cautious Spending Helps California Bonds to Get an Upgrade

(CN) – Less than a decade ago, California served as an economist’s cautionary tale about out-of-control spending, unfunded liabilities and unbalanced budgets.

The economic picture has since brightened considerably, as Fitch Ratings gave its coveted “AA” rating to general obligation bonds of the state of California in an announcement issued Friday.

“The rating incorporates California’s large and diverse economy that supports strong, albeit cyclical, revenue growth prospects, solid ability to manage expenses through the economic cycle and a moderate level of liabilities,” the ratings agency said in a release.

The ratings agency assigned the “AA” rating to $700 million worth of various purpose general obligation bonds and $1.6 billion various purpose general obligation refunding bonds to be put on sale on September 5. California can use the proceeds from that sale to fund capital projects and pay down its debt.

Gov. Gavin Newsom signs one of the budget trailer bills at Sacramento City College in Sacramento, Calif., on July 1, 2019. (AP Photo/Rich Pedroncelli)

Fitch also cited a disciplined approach to spending growth emphasized by former Gov. Jerry Brown who presided over budget surpluses during his second term but continued to urge restraint.

“The state eliminated the overhang of budgetary borrowing that had accumulated through two recessions and continues to set-aside funds in the budget stabilization account,” Fitch said in the release.

Current Gov. Gavin Newsom celebrated the news Friday.

“At a time when Washington is soaking Americans with a trillion dollars in debt to pay for tax cuts that benefit the wealthy, California is taking the exact opposite approach,” Newsom said.

Newsom made the case that the recently approved budget represents more fiscal prudence from the statehouse in Sacramento.

Newsom signed a state budget that will result in $19.2 billion in reserves, including approximately $16.5 billion in a Rainy Day Fund; $1.4 billion for the Special Fund for Economic Uncertainties and $900 million and $500 million for social safety net and public school programs respectively.

“Our Rainy Day Fund is larger than at any time in our history,” Newsom said.

The budget also address California’s pension issues, which once dogged the fiscal of the health more than any other issue outside of recessions.

The budget allocated $9 billion over the next four years to various unfunded liabilities and retirement systems for state and school employees.

The state still maintains about $100 billion in outstanding debt.

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