"We think there’s a certain amount of risk out there that the state could go down a path that could undermine its current balanced budget position," says Gabe Petek, a credit analyst with the agency. "That could undermine its credit quality in the future and lead to a lower rating."
Petek co-authored a report S&P released Monday.
It echoes warnings by Governor Jerry Brown to limit spending.
Legislative Republicans have called for tapping the state’s budget surplus to pay for road repairs and developmental disability programs.
Democrats have suggested new spending on welfare and early childhood education.
The ratings agency says California may have less money to work with than it appears, as the stock market slows and the state's retirement costs rise.