California's only remaining A-level credit grade from a major rating firm is in greater danger as the state's budget woes deepen yet again.
Standard & Poor's on Wednesday cut its rating on California's $64 billion in general-obligation debt to A-minus from A and warned that the outlook was "negative," meaning another reduction could loom.
S&P cited new concerns about the state's finances, including a possible cash shortage "if the state's revenue and spending trajectories continue."
Scrambling to close a $20-billion budget gap, Gov. Arnold Schwarzenegger has proposed a number of one-time fixes -- including having the federal government contribute nearly $7 billion in new aid. Yet the state's chief budget analyst believes the odds of getting that much help from the U.S. are "almost nonexistent."
S&P worries that the state could face a cash crunch in March, before it receives the income tax payments due in April.
"There could be days in March when they go into a negative cash position," said Gabriel Petek, an S&P analyst in San Francisco.
Although Petek said he didn't believe California would be in jeopardy of missing any payments due on its debt, he said the government might pay other obligations with IOUs, as it did last summer, or the state might require a short-term loan from Wall Street.
S&P's main rivals in the credit-rating business -- Moody's Investors Service and Fitch Ratings -- already rate California's debt the lowest of any state, and below "A" level. Moody's rating is Baa1; Fitch's is BBB.
Falling bond ratings often can drive up the interest rates a state or municipality must pay to borrow. But in California's case, even as the budget picture has worsened over the last two months the market for the state's bonds has been fairly placid, with yields on the securities holding relatively steady in the marketplace.
After a flurry of bond offerings last fall, California Treasurer Bill Lockyer has no plans to test investors' appetite for new state debt in the near future, a spokesman said.
In a statement, Lockyer's office said S&P's move Wednesday "highlights the critical need for the Legislature and governor to act swiftly to solve our budget problems, and do so in a way the market finds credible."
"The agency made it pretty clear that a failure to adopt real budget solutions in a timely manner will threaten us with a further downgrade. Every time that happens, taxpayers' debt service burden grows heavier. It's time we started lightening that load, not making it worse."