Calif. faces possible credit downgrade

SACRAMENTO, July 17 (UPI) -- California faces the possibility of a credit downgrade because of its inability to resolve a budget crisis, state Treasurer Bill Lockyer said.

Such a downgrade would make it more difficult for the state to borrow money for public works project such as school and road construction, the Los Angeles Times reported Thursday.

"With every passing day, the state's credit rating moves closer and closer to the junk pile," Lockyer said in a statement. "If our credit rating sinks to junk status, the state will find the door to the infrastructure bond market locked shut."

Gov. Arnold Schwarzenegger and legislative leaders have been unable to agree on a solution to the state's $26.3 billion budget deficit.

At a news conference Thursday, Schwarzenegger said the cessation of budget talks Wednesday night was not a "breakdown." Rather, he called it a "stall … because some new issues came up."

Assembly Speaker Karen Bass has said there will be further talks and the Legislature has postponed its summer recess, which was scheduled to begin Friday. Jim Evans, a spokesman for state Senate leader Darrell Steinberg said leaders planned to work "through the weekend, and we hope to get a deal soon."

Democrats want any budget deal to change state law so when the economy eventually improves education funding would be guaranteed to recover an estimated $11 billion it stands to lose as the state closes the gaping budget hole. Democrats also want changes in the law to guarantee education funding isn't cut during future economic crises.