Moody’s on California: Nice Weather, Shame About the Insolvency

Meant to post this sooner, but here you are, your moment of California bond-rating zen:

Moody’s Investors Service has placed the State of California’s A2 general obligation rating, as well as the ratings for lease debt and other state-backed debt listed below, on Watchlist for possible downgrade. The Watchlist action reflects the following: an expected budget gap of over $20 billion (or more than 20% of the state’s General Fund budget) in the state’s fiscal year 2010 budget; the announcements by the state controller that without solutions the state will not be able to meet all its financial obligations in July; the continued political stalemate that has resulted in inaction by the legislature thus far; and the limited solutions available to the state. Although the executive branch has proposed a package of budgetary and cash measures, thus far no meaningful solutions have come out of the legislature.

How is it, you wonder, that there remains room to downgrade California? Ah, the wonders of credit ratings services. At the end of the world they will almost certainly wait until the fires have scourged the planet before declaring assets impaired. Yes, they’re like that.

Anyway, there’s more:

The difficulties the state is facing include the following:

* After enacting a budget for fiscal year 2010 in February, the economy has continued to deteriorate and the state is now expecting budgetary gaps for fiscal year 2010 of over $20 billion.

* Budgetary solutions are more limited now that the voters did not authorize the state to issue deficit bonds secured by lottery revenues.

* Without legislative and executive solutions, the state is expecting to run short of cash beginning in July.

Well, sure, but other than that, however, the weather is nice. And the point break at Swami’s is super.