On Monday, state Treasurer Bill Lockyer (D) released a statement saying there is no reason the downgrade in the federal government's credit rating would immediately affect California, but uncertainty remains about possible cuts to health care funding, the AP/San Jose Mercury News reports (Lin, AP/San Jose Mercury News, 8/8).
On Friday, ratings agency Standard & Poor's announced it was downgrading the credit rating for long-term U.S. government debt by one step, from the highest rating of AAA to AA-plus.
The agency said it made the decision -- the first ever credit rating decrease for U.S. debt -- because it does not believe political leaders can ward off a long-term fiscal crisis (Haigh, AP/San Francisco Chronicle, 8/8).
Details of Lockyer's Comments
Lockyer said the lower rating reflects partisan gridlock in Washington, D.C.
He said that this year, California has:
- Balanced the state budget;
- Cut its need to borrow cash in half; and
- Reduced its structural financial deficit problem.
As a result, Lockyer said there is no reason to expect negative ratings for the state, which shares the lowest state credit rating with Illinois (AP/San Jose Mercury News, 8/8).
Last month, S&P revised California's long-term ratings outlook from negative to stable.
Health Care Implications
However, uncertainty remains about how the lower federal credit rating could affect health care programs in states like California that rely heavily on federal funds for Medicaid.
The state expects to spend about $15 billion of its own funds on Medi-Cal, the state's Medicaid program, but it also anticipates to receive about $30 billion from the federal government for the program over the next year (AP/San Francisco Chronicle, 8/8).
Gabriel Petek, an S&P analyst, said that pressure to reduce federal spending could mean less available funds for social programs run by the state, specifically health care (AP/San Jose Mercury News, 8/8).
Tax Revenue in Budget Package Questioned
Meanwhile, observers are questioning whether the state will take in a projected $4 billion in general tax revenue after the recent dip in the stock market. The expected revenue is a key part of the recently passed state budget package.
Michael Shires -- a fiscal policy expert at Pepperdine University -- said, "It doesn't look real good right now for the budget projections" (Kasler, Sacramento Bee, 8/9).
Chris Thornberg -- a founding principle at the Los Angeles consulting firm Beacon Economics -- said that the revenue projections appear "much less realistic" after the recent decline in the stock market.
Stephen Levy -- director and senior economist at the Center for Continuing Study of the California Economy -- said the state's economic growth could be "slower in the months ahead than it appeared a couple of months ago," adding the state is "unlikely to get an extra $4 billion in revenues from general growth" (Harmon, Santa Cruz Sentinel, 8/8).