Concerned that California's worsening financial picture could hurt its counties, Moody's Investors Service is considering lowering the credit ratings of the state's county governments.
The Wall Street rating agency had already announced last week that it was considering a downgrade of California's rating in the aftermath of the Sept. 11 terrorist attacks and the state's cloudy financial picture resulting from the energy crisis.
The counties' bond ratings now range from Aa2 to Baa2. A downgrade would mean that the counties would pay millions more in interest when financing their debts.
This week, Moody's gave the counties a negative credit outlook, which stops short of warning that a downgrade in the rating is imminent, but indicates that it could be later. It did so because of "the possibility that the state could address a significant part of any budget shortfall by diverting revenues from local governments, particularly counties," to balance the state budget, the firm said in a report.