California’s growing economy and billions in budget reserves has earned the state a better outlook from one of the key credit ratings agencies.
This sets up the future possibility for California to receive lower interest rates on its debt.
The ratings agency Moody’s Investors Service revised its outlook about the state’s ability to pay back taxpayer-funded bonds from stable to positive, suggesting it could raise the state’s credit rating in a year or two.
“Economically, we’re looking at job growth, GDP growth that’s outpacing many parts of the U.S.,” said Matt Butler, the agency’s lead analyst for California. “Financially we’re looking at very strong revenue growth. And all of that is leading to an increased capacity on the state’s part to bolster its reserve position.”
Butler says lawmakers’ use of some of that revenue to fill state reserve funds, in preparation for another recession, helped the state’s revised outlook.
Still, Butler says California’s “Double A 3” rating is ahead of only three other states.
The report from Moody’s says California could receive a credit downgrade in the event of an economic downturn, reductions in health care spending by the Trump administration or significant new debt.
The November ballot will ask voters whether they would like to approve more than $14 billion in new bonds for water projects, children’s hospitals and affordable housing.
If the agency does revise the state’s rating upward in a year or two, California will enjoy its best financial rating since 2001.
California has $87 billion in taxpayer funded debt, according to Moody’s.
The other two major credit ratings agencies, Standard & Poor’s and Fitch, have upgraded California’s general obligation bond rating in the past two years.