PICKET: S&P cautions California on its budget

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Four months after Standard and Poor’s rating agency upgraded California’s financial future from “stable” to “positive” the S&P is noting they could reverse that rating anytime soon if state lawmakers do not pass a solid budget this year. According to the L.A. Times: (bolding is mine)

A final budget is due June 15, and lawmakers’ task has become increasingly difficult as the state’s deficit has swelled to nearly $16 billion.

“We could change the outlook to negative or lower the rating if we believe the state’s credit quality weakens through the budget process,” said a report from Standard & Poor’s.

The ratings agency had upgraded California’s financial outlook from “stable” to “positive” in February. That means California’s credit rating of A-, the lowest of any state, is poised for improvement.

California Governor Jerry Brown’s spokesman Gil Duran bragged to me about the state’s “positive” upgrade by Standard and Poor at the National Governor’s Association meeting in Washington back in March, when I asked Governor Brown about the possibility that California would fall into bankruptcy. While the upgrade was significant, and it is easy to distract by pointing to a misspoken remark from a reporter, it is still puzzling how the governor’s spokesman can brag about his state being in last place on the S&P rating list. 

Reuters noted that as of Tuesday night the S&P had not made any changes in California’s rating yet:

California is the most populous U.S. state. Its economy is the ninth largest in the world and just smaller than Italy’s economy.

Brown on Monday enlarged the state’s projected budget gap for the coming fiscal year to reflect the effects of a slow economic recovery and weaker-than-expected revenue.

In his plan to close the deficit, the 74-year-old Democrat proposed deep cuts to welfare, social and health programs. His plan also assumes voters in November will approve a ballot measure to raise the state’s sales tax and increase personal income taxes on the wealthy.

Reuters is also reporting that Brown is relying on the FaceBook initial public offering to help boost the state’s economy:

Brown’s budget plan expects to offset some of the state’s money woes with revenue from this week’s initial public offering of Facebook. The No. 1 social network is expected to raise $12.1 billion in what could be Silicon Valley’s largest-ever IPO. It is also seen generating $2.1 billion in revenue for the state through the 2013 fiscal year, according to the state’s budget watchdog agency.

However, Facebook is having problems of its own. General Motors, the world’s largest car maker dropped its ads from Facebook. The San Francisco Chronicle reports that the defection “may spur other marketers to reconsider ads on the site and hamper sales growth just as the social-network debuts as a publicly traded company, an analyst said.”:

If auto ads, generally among the most effective online promotions, fail on Facebook, then major advertisers including AT&T Inc., Procter & Gamble Co. and American Express Co. may follow GM’s lead and curb spending on the site, said Carlos Kirjner, an analyst at Sanford C. Bernstein & Co. in New York.

“The revenue loss is insignificant, but the fact that one of the largest brand advertisers in the country sees Facebook as ineffective suggests others may do so,” Kirjner said in a research report. “One can plausibly infer that what GM found out, others will too, making it harder to make a bull case for revenue growth based on the presumption that there is high return on investment from social advertising to brand advertisers.”

Regardless of the outcome, Brown and the rest of the Democrats in the legislature will continue to blame previous administrations for the current fiscal financial crisis California finds itself in. Is it no wonder that as Congressman Kevin McCarthy, California Republican and congressional majority whip, noted on Fox News on Wednesday afternoon, that state governors who live nearby California say its like living next door “to the Simpsons.” 

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About the Author
Kerry Picket

Kerry Picket

Kerry Picket, a former Opinion Blogger/Editor of The Watercooler, was associate producer for the Media Research Center, a content producer for Robin Quivers of "The Howard Stern Show" on Sirius satellite radio and a production assistant and copy writer at MTV.

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