AlphaNinja - Just passin' it along....Fitch and the ratings agencies have been SO bad, and SO late, that this could be a contrarian indicator signalling a bottom in California's economy! I'm kidding, but only a little.
Fitch downgrades state of California GOs to 'A-'; Rating Watch Negative
Fitch Ratings has downgraded the state of California's (the state) long-term general obligation (GO) bond rating to 'A-', from 'A', and placed the bonds on Rating Watch Negative. The rating action affects GO, lease appropriation and related bonds of the state. The downgrade to 'A-' is based on the magnitude of the state's financial and institutional challenges and persistent economic and revenue weakening. Fitch expects the state's finances will continue to be strained through fiscal year 2010 and beyond regardless of any likely outcome to the current budget impasse. Baseline revenues are estimated to decline 19% (before the effect of tax changes) in the current fiscal year ending June 30 (fiscal 2009), then stabilize in the upcoming year, leaving a $20+ billion gap to close. This gap follows nearly $35 billion in measures approved in February to close projected imbalances through fiscal year 2010. Achieving and sustaining solutions of this magnitude will continue to pose an ongoing risk to budgetary balance, even excluding the potential for further revenue weakening. The placement of the state's bonds on Rating Watch Negative reflects short-term concerns about the state's ability to achieve a timely solution to the liquidity crisis. Timely implementation of measures under consideration could significantly improve the state's liquidity posture; however, absent such actions cash will be depleted by the end of July.
Notice I bolded "further revenue weakening." Revenues, or "taxes" to those of us non-politicians, are dropping so fast in CA that it makes the tax-raising debate almost a moot point. When you generate something like 50% of income taxes from the top 1% of earners, it's going to be volatile - especially when those earnings are largely tied to the imploding capital markets.
Market tanking on the news, hey why not...
California Credit Default Swaps, or the likelihood of defaulting on debt. How the state is better off than when this figure peaked in December is anyone's guess...