California’s budget still mired in dysfunction, S&P says

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Standard & Poors, in a report released Friday, said California remains hardwired for financial dysfunction despite improvements in the state’s bottom line.

The report was aimed at rating the state’s recent bond offerings, but it also attempted to diagnose the problems that have dogged California’s budget.

In particular, the ratings agency singled out the state’s governmental gridlock -- lawmakers need a two-thirds vote to raise taxes but only a simple majority to pass the budget -- and legal obligations to programs like Medi-Cal. It also said critical revenue estimates can be colored by political negotiations between the governor’s office and the Legislature.

‘They have a lot of institutional disadvantages,’ said Gabriel Petek, an analyst at the ratings agency.

The report raised concerns that lawmakers are balking at spending cuts that may be necessary to balance the budget.

‘In our view, a waning appetite for more budget austerity among lawmakers could present a hurdle to timely and realistic budget solutions, which could interfere with the potential for the state’s credit quality to strengthen,’ said the report. Democrats have resisted cuts to welfare and college scholarships.

Last month Standard & Poor’s upgraded California’s financial outlook from ‘stable’ to ‘positive.’ That means the state’s credit rating of A-, the lowest of any state, is poised for improvement.

-- Chris Megerian in Sacramento

Twitter: @chrismegerian

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Gabriel Petek