State credit wobbles as GOP lawmakers oppose bond plan
SACRAMENTO (AP) – If Gov. Gray Davis doesn’t release details of the state’s power purchases, Republican lawmakers said Wednesday, they won’t back a plan that could repay the state treasury the billions spent buying power.
Until Davis’ power plan is public, his ”secretive process simply asks too much in the way of trust,” said Assembly Republican Leader Dave Cox in a prepared statement Wednesday.
Their opposition, coupled with the recent downgrading of California’s credit rating and a faltering economy, is raising questions about the financial stability of the nation’s most populous state.
”If you talk to people, other than in state government, there is a real concern over this whole issue and what the long-term implications are,” said Jack Kyser, chief economist for the Los Angeles Economic Development Corp.
Davis said Wednesday the state has acted ”aggressively and responsibly” in its power buys. ”The reality is, the lights would be off today if the state hadn’t stepped in and bought power.”
”We’ll get through it and when we get through it and repay the general fund, I think you’ll see our credit rating go back up,” Davis said.
Meanwhile, officials are starting to sculpt a multibillion 2001-02 state budget without knowing when the general fund will be repaid.
State Treasurer Phil Angelides is pleading with lawmakers to approve selling up to $14 billion in bonds to repay the general fund for more than $5.7 billion spent on power since January.
Angelides wants lawmakers to amend AB1X – the sweeping legislation approved in January allowing the state to buy power – to include authorization for the state to sell billions in revenue bonds.
Davis and Democratic lawmakers support Angelides’ plan, but he needs at least a handful of Republican votes to make it happen.
Some Republican lawmakers, along with media organizations, have asked Davis for details of the power-buying contracts and plans with the state’s investor-owned utilities.
Meanwhile, the uncertainty surrounding the state’s ability to replenish its general fund prompted Standard & Poors to downgrade the state’s credit to among the nation’s lowest.
Two other major credit rating agencies may follow suit, another possible deterrent to businesses contemplating moving to a state already bruised by rolling blackouts.
”We are hearing anecdotal tales from neighboring states about businesses wanting to expand in their state, particularly citing blackouts in California,” said David Hitchcock, a director in the S&P state and local government group.
S&P’s downgrade now puts California’s credit in the bottom three of the nation, equal to Hawaii’s and slightly better than Louisiana.
California’s credit rating was last downgraded in 1994, when the state was emerging from a long recession that featured a $14 billion deficit. Then it took the state more than five years to recover a high-quality rating.
Now, S&P still thinks the state can repay its debts but not as easily as before. So it dropped its rating on California’s general obligation bonds by two notches from AA to A+.
While the rating has been cut, some analysts said it’s not as if California’s finances have plunged to what is considered a ”junk” bond status, which would require the state to pay even higher interest rates.
S&P is one of three major rating agencies watching the state’s financial performance. Credit ratings help determine how much states and other borrowers must pay when issuing bonds. The lower the rating, the higher the interest rate the state must pay to attract investors.
Ted Gibson, California Department of Finance chief economist, said the downgrade will cost the state $2.5 million per $1 billion in bonds issued in the future.
The state issues general obligation bonds to pay for voter-approved projects such as construction, schools and earthquake retrofitting.
See ratings lists at http://www.standardandpoors.com/
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