S&P issues warning on California finances

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The ratings agency Standard & Poor’s warned on Tuesday that it could downgrade California’s financial outlook if lawmakers don’t pass a credible budget plan this year.

A final budget is due June 15, and lawmakers’ task has become increasingly difficult as the state’s deficit has swelled to nearly $16 billion.

‘We could change the outlook to negative or lower the rating if we believe the state’s credit quality weakens through the budget process,’ said a report from Standard & Poor’s.

The ratings agency had upgraded California’s financial outlook from ‘stable’ to ‘positive’ in February. That means California’s credit rating of A-, the lowest of any state, is poised for improvement.

Gov. Jerry Brown’s budget proposal is a solid starting point, said Standard & Poor’s, but there are many political and policy hurdles left to go.

‘We view the legislature’s discretion over fiscal policy as effectively amounting to deciding how to allocate spending cuts,’ the report said.

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-- Chris Megerian in Sacramento

twitter.com/chrismegerian