California credit rating takes a hit

SACRAMENTO, July 6 (UPI) -- An international rating agency Monday cut the rating for California bond debt from "A-minus" to "BBB," citing "budgetary and cash flow" problems.

Fitch Ratings, based in New York and London, said it was keeping California on "rating watch negative," indicating a further rating downgrade is possible, the Los Angeles Times reported. The next rating down from "BBB" is "BBB-minus" and the next step below that is "BB" -- a junk rating.

The state's bond debt rating had not fallen below "A" since 2004.

"The downgrade to 'BBB' is based on the state's continued inability to achieve timely agreement on budgetary and cash flow solutions to its severe fiscal crisis," Fitch said.

The firm said its "BBB" rating -- an investment-grade level -- indicates "expectations of default risk remain low."

Two other rating firms, Standard & Poor's and Moody's Investors Service, have warned they may also cut their ratings for California, which has an "A" with S&P and "A2" with Moody's, the Times said.

Gov. Arnold Schwarzenegger last week declared the state was in a fiscal emergency. State officials estimate the state budget deficit amounts to $26.3 billion, Schwarzenegger has announced plans for deep spending cuts and the state plans to distribute IOUs to vendors and to taxpayers owed refunds on their 2008 tax returns.