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California removed from bond-rating watch list

Moody's Investor Services says the state's finances are 'stable at this time' and the threat of its bond rating being downgraded has decreased for now. IOU holders can begin cashing them in Sept. 4.

August 22, 2009|Patrick McGreevy

SACRAMENTO — California's finances have stabilized enough that on Friday the state was taken off one watch list of debtors facing possible bond-rating downgrades.

Getting off the Moody's Investor Services "watch list" means there is less threat of a ratings reduction that would cost taxpayers millions of dollars more when the state borrows money. Moody's action came a month after the governor and Legislature plugged a $23.6-billion budget hole by making deep cuts in spending.

"The outlook on the state of California is stable at this time, based on the expectation that the state will deal with any further challenges to its budgetary balance and liquidity without another major cash crisis," Moody's said.

But the state is not completely out of the woods financially, the agency said: The amended budget "will most certainly leave the state with significant structural imbalance."

After California's bonds were downgraded last month to three levels above junk status, any further rating reduction could have cost taxpayers millions more to borrow with general obligation bonds, which the state plans to do in the fall, said Tom Dresslar, a spokesman for the state treasurer's office.

In another sign that the state is emerging from financial chaos, authorities Friday confirmed that $2.15 billion in IOUs issued by the state since July 2 can be redeemed starting Sept. 4, nearly a month earlier than originally scheduled.

IOUs can be redeemed in person at the treasurer's office in Sacramento, or via mail. Those who redeem IOUs in person will get money on the spot; mail will take a week to 10 days.

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patrick.mcgreevy @latimes.com

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