S&P downgrades California's worst-in-nation credit rating

On the eve of another budget battle in the Legislature, California's worst-in-the-nation credit rating took another hit Wednesday.

Standard & Poor's Ratings Services downgraded California a notch to an "A-minus" rating, citing the $19.9 billion deficit and the "impending recurrence of a cash deficiency."

Lower credit ratings can often translate into higher borrowing costs. The latest downgrade leaves California two notches below Illinois, the next lowest among the 50 states, said S&P analyst Gabriel Petek.

In its statement, S&P said Gov. Arnold Schwarzenegger is relying on "uncertain assumptions for major portions of the budget balancing proposal," including his belief that California is in line for a $6.9 billion cash infusion from the federal government.

The day before, state Legislative Analyst Mac Taylor punched a hole through that assumption. He said the likelihood of California receiving $6.9 billion is "almost nonexistent." Something closer to $3 billion is more like it, he said.

Still, the Republican governor pounced on the S&P announcement, saying the Legislature must act quickly on his proposal to cut the deficit by $8.9 billion in a special legislative session.

"S&P says that the absence of timely action could lower our rating even further," said Department of Finance spokesman H.D. Palmer. If the Legislature waits until summer, about a quarter of those savings will vanish, he said.

Democrats, who control the Legislature, have already said they'll fight Schwarzenegger's proposed cuts in social services and other programs.

At the same time, few elected officials of either party dispute that the deficit must be addressed soon.

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