Nov. 17, 2011, 3:11 p.m. EST
NEW YORK, Nov 17, 2011 (BUSINESS WIRE) -- Underperforming revenues will likely prompt the State of California to lower its near-term revenue outlook and implement some mid-year trigger cuts contained in its 2012 fiscal budget, a scenario that will have disparate implications across some California credits, according to Fitch Ratings.
Trigger cuts would reduce spending not only on certain state operations, but also on transfers for higher education and school districts. The implementation of mid-year cuts will have little effect on the credit of the state or the University of California (UC). However, credit risks are potentially more significant for California-area school districts rated by Fitch.
For the state (GO bonds rated 'A-' by Fitch), the trigger cuts provide a quick corrective response to revenue underperformance and are not expected to affect the state's credit. The state's larger credit challenge remains addressing the reopened budget gap created by revenue underperformance and inability to achieve other budget solutions. UC (rated 'AA+') maintains significant flexibility to absorb the expected trigger cut despite having already absorbed substantial cuts this fiscal year. By contrast, the trigger cuts could affect the credit quality of some school districts, notably those with higher reliance on state funds and already limited financial flexibility. Read more...