Fitch on new California budget problems: Don’t panic

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A Wall Street rating agency on Tuesday called California’s new, eye-catchingly large $16-billion deficit ‘unsurprising’ and said it expected little progress until after primary elections next month.

Fitch Rating’s note suggested little ground for either panic or optimism about the state’s prospects after Gov. Jerry Brown announced the deficit had nearly doubled since he released his initial budget proposal in January. The note briefly reviewed Brown’s May budget revision, released Monday.

‘The increase in California’s budget gap projection is unsurprising given the disappointing actual tax collections through the current fiscal year, adverse court and federal actions, and higher spending needs,’ Fitch said.

‘We believe that the state of California has the ability to address the expanded budget gap,’ the note continues, ‘although rebalancing the state’s finances and cash flows through fiscal 2013 will not end the state’s fiscal uncertainty.’

That’s because the slow recovery hasn’t refilled California’s coffers yet, and the state is still paying off debts it incurred to weather the last two recessions, the analysis concludes. It advises to expect little action until after the primary election June 5.

The deadline for the Legislature to pass Brown’s $91.4-billion revised budget is June 15. The plan assumes voters will help close the deficit by passing $8.5 billion in taxes in November; the remainder of the deficit is closed by cuts to services, converting state workers to a four-day work week and use of one-time money and surplus state funds.

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--Nicholas Riccardi in Sacramento