S&P Downgrades California's Debt Rating

Standard & Poor's has downgraded California's debt rating from A to A-, and is voicing concern that the state could run out of cash — and again resort to IOUs — as soon as March.

"There could be days in March," before income tax payments usually arrive, "when they go into a negative cash position," Gabriel Petek, an S&P analyst in San Francisco, told The Los Angeles Times . California owes $64 billion in general obligation debt, the paper said.

S&P's downgrading underscores the precarious situation Golden State lawmakers find themselves in heading into another rough-and-tumble budget year. Gov. Arnold Schwarzenegger (R) has called for a major restructuring of the state's tax code — and nearly $7 billion in additional federal funds — to help the Golden State close a $20 billion budget shortfall. Lawmakers closed $60 billion in budget gaps last year.

But the governor faces long odds in getting what he wants. The tax reforms he is pushing have received a cool reception in the statehouse, and even California's chief budget analyst this week said that the chances of the Golden State receiving $7 billion in federal help are "almost nonexistent."

S&P based its downgrading on cash shortages that could result "if the state's revenue and spending trajectories continue," The Times reported.