SACRAMENTO — California has made "notable progress" improving the state government's financial health since the economic downturn, according to Fitch Ratings, a New York debt-rating service.
In a statement Wednesday, Fitch praised the state for winning approval of two tax increase initiatives last month and for making significant spending cuts over the last several years.
But the firm noted that the state still has room to improve. "The state's fiscal recovery is incomplete and challenges remain, but continued economic improvement, a demonstrated commitment to more sustainable budgetary operations and progress on reducing budgetary debt would be viewed positively by Fitch," said Doug Offerman, a senior director.
Fitch credited voters with approving Proposition 30 on Nov. 6. It raises the personal income tax on couples earning over $250,000 annually for the next seven years, generating about $6 billion in annual revenue.
Voters also passed Proposition 39, which changes the way corporate income taxes are calculated on some multi-state companies and raises $500 million a year.
Those actions could help the state avoid the "volatile revenue swings and severe fiscal and cash-flow crises" that have bedeviled California over the past decade, Fitch said. Those difficulties, combined with partisan politics and voter initiatives that restrict how revenue is spent, have kept an "A-minus" rating on the state's general obligation debt, below that of many other states.
California's economy also is showing signs of improvement: steady economic and revenue gains, 27 months of employment growth and an improving housing market, Fitch said.
The statement also could signal that the firm's rating of California bonds will be upgraded if current trends continue.
The relatively upbeat analysis is "another indication that we're moving in the right direction," said H.D. Palmer, a spokesman for the California Department of Finance. "That said, the governor has made it very clear that we need to maintain financial discipline."