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-->California Bond Rating Cut as $35 Bln Deficit Looms (Update1)
By Dennis Walters
New York, Dec. 19 (Bloomberg) -- California's bond rating was cut by Standard & Poor's because of a projected $34.8 billion budget deficit in the next two fiscal years, tying the most- populous U.S. state with Louisiana for the lowest credit rating.
The higher budget gap announced by Governor Gray Davis yesterday ``represents a sharp increase'' from the $21 billion deficit projected by the state's nonpartisan legislative analyst last month, Standard & Poor's said in a statement.
California, the world's fifth-largest economy in gross domestic product, has received less-than-expected tax revenue over the last two years after the U.S. economy slowed and a declining stock market slashed capital gains tax revenue.
``The state needs to get is financial house in order,'' said Steve Westly, a former EBay Inc. executive who was elected as state controller in November. ``The governor and the Legislature must move quickly to make sure that happens.''
S&P cut ratings on $23.5 billion of the state's general obligation debt to A from A+. Another $6.4 billion of lease bonds backed by the state's general fund fell to A- from A. The credit rating company also lowered $12.5 billion of revenue anticipation notes maturing in June to SP-2 from SP-1.
About two-thirds of the 50 U.S. states are receiving less revenue than they budgeted, the National Conference of State Legislatures said last month. Investors said yesterday that they anticipated a downgrade because of the record deficit.