Public Finance Division

History of California's General Obligation Credit Ratings

Historical Rating Changes

June 2006
Fitch upgraded $38.5 billion in California's general obligation bonds on June 9. Fitch cited California's continuing economic recovery, strong revenue performance, and continued progress in reducing fiscal imbalances. Also affected by the upgrade were the Veterans general obligation bonds and the State's lease-revenue bonds.

May 2006
Standard & Poor’s raised California’s general obligation (GO) bond rating to A+ from A on May 17. S&P based the upgrade on California’s “strong economic growth in almost all sectors,” and its recent revenue surge, which led to a higher than expected general fund balance, and reduced the State’s structural deficit to an estimated $2.5 billion in fiscal year 2007-08. In addition, S&P raised its ratings on the State’s lease-revenue supported debt to A from A-.

Moody's Investors Service upgraded California's general obligation (GO) bonds to A1 from A2. Moody’s cited the State’s strong economy and increased tax revenues. The upgrade affected approximately $38.3 billion of outstanding state GO bonds, $6.5 billion of General Fund supported lease revenue bonds and judgment obligations, and $3.2 billion of General Fund-enhanced tobacco settlement bonds.

July 2005
Fitch Ratings upgraded the rating on approximately $37 billion State of California outstanding general obligation (GO) bonds to 'A' from 'A-'. Also upgraded, to 'A-' from 'BBB+', are the ratings on bonds issued by several agencies, but supported by state resources. The 'A' rating assigned to $1.3 billion veterans GO bonds and the A+ rating assigned to $10.9 billion GO economic recovery notes are affirmed. The rating actions reflect California's improved economic and revenue performance, and some progress in addressing the structural imbalance, which remains large. Debt levels are moderate.

Moody's Investors Service upgraded the State of California's general obligation bonds to A2 from A3, while maintaining the State's positive rating outlook. The upgrade reflects a continuing favorable trend of recovery in the State's economy and tax revenues, better than expected financial performance in fiscal 2005, and a moderately improved financial outlook for 2006 and beyond. The rating action affects $36.5 billion of outstanding GO bonds, $5.7 billion of General Fund-supported lease revenue bonds, and $2.5 billion of General Fund-enhanced tobacco settlement bonds.

September 2004
Fitch Ratings raised California's general obligation bond rating to 'A-' from BBB. In raising California's rating Fitch cited the State's financial improvement with the successful issuance of economic recovery bonds, improving economic indicators, and revenues matching estimates.

August 2004
Standard & Poor's (S&P) raised California's general obligation bond rating to ‘A' from ‘BBB’ and removed the rating from CreditWatch. In addition, S&P raised its rating on the State's $7.3 billion of outstanding lease debt to ‘A-’ from ‘BBB-’, as well as its rating on $2.6 billion of Golden State Tobacco Securitization Corp. bonds, series 2003B, with general fund support. S&P cited the easing of immediate liquidity pressure on the State following the sale of the $11.3 billion Economic Recovery Bonds, the State's recent economic improvement, and an enacted fiscal 2004-05 state budget that is still reliant on substantial amounts of long-term borrowing to achieve balance.

May 2004
Moody's Investors Service upgraded the State's general obligation bonds to A3, from Baa1, and assigned a positive rating outlook. In raising California's bond rating, Moody's cited California's now established trend of recovery in the State's economy and tax revenues and an improved state budgetary and liquidity outlook.

December 2003
Fitch Ratings lowered the State's general obligation bond rating to BBB from A. In addition, Fitch downgraded the State's lease revenue bonds to BBB from A-. Fitch did not downgrade the self-supporting veterans bonds ($1.9 billion outstanding), which remain at A. All ratings remain on "Rating Watch Negative." Fitch cited California's heavy reliance on the completion of an increased deficit financing and the tremendous amount of measures needed to close a widening budget gap. Also cited was the decision to submit the deficit bonds and the balanced budget proposal for the March 2004 election, injecting another element of uncertainty.

Moody's Investor Service lowered the State's general obligation bond rating to Baa1 from A3, and lowered the ratings on the State's lease revenue bonds and general fund-enhanced tobacco bonds to Baa2 from Baa. The outlook for all of the ratings remains negative. In downgrading the State, Moody's cited the recent Vehicle License Fee cut, stating that the action is expected to significantly increase what is already expected to be a substantial fiscal deficit over the next eighteen months, and the inability of the administration and legislature to reach a consensus regarding the State's fiscal problems.

August 2003
Moody's Investors Service lowered the rating on the State's general obligation bonds to A3 from A2, and lowered the rating on the State's lease revenue bonds to Baa1 from A3. The ratings remain on Watchlist for possible further downgrade.

July 2003
Standard and Poor's lowered its rating on California's state general fund supported general obligation debt to 'BBB' from 'A'. Standard and Poor's also lowered the general fund lease-supported debt to BBB- from A-. The rating agency cited the lack of progress in adopting a fiscal 2004 budget and the gubernatorial recall election as reasons for the downgrade. Standard and Poor's stated that further credit deterioration in the short term is unlikely absent a severe cash flow crisis.

April 2003
Moody's Investor Service lowered its rating for California's 2002-03 Revenue Anticipation Notes (RANs), scheduled to mature on June 20, 2003 to MIG2 from MIG1. Moody's attributed the downgrade to the delay of the second issuance of California's Tobacco Securitization, resulting in a delay in the receipt of approximately $2.0 billion in revenue.

February 2003
Moody's Investors Service lowered California's General Obligation (GO) bond rating to A2 (with a stable outlook) from A1, and the State's lease revenue bond ratings to A3 from A2. Moody's reaffirmed its ratings for the State's 2003 Revenue Anticipation Notes (RANs), currently MIG1 and MIG2, and the State's Commercial Paper (CP) program, currently P-1.

In lowering the State's GO and lease revenue bond ratings, Moody's cited its expectation of California's inability to sufficiently address the 2003-04 fiscal year imbalance. In addition, Moody's anticipates the deficit to continue beyond the 2003-04 fiscal year, barring a stronger than anticipated state and national economic recovery.

December 2002
Standard and Poor's lowered its rating on State of California GO bonds to A from A+, the State's RANs to SP-2 from SP-1, the State's commercial paper program to A-2 from A-1, and the State's General Fund lease-backed debt to A- from A. The outlook was rated as stable. Standard and Poor's cited the announcement of a projected general fund budget gap of $34.8 billion for FY 2004 which includes a sharply higher General Fund deficit of $10.4 billion for fiscal 2003. The rating agency stated that this level of deficit would likely exceed the State's level of other borrowable funds at year-end even if Governor Gray Davis's proposed $3.4 billion midyear fiscal 2003 cuts are implemented.

Fitch lowered California's GO bonds to A from AA, the State's lease obligations to A- from A+, and the State's $12.5 billion in RANs to F2 from F1. Fitch maintained a negative rating watch for the State. Citing financial pressure since 2001, reflecting in part recessionary conditions and an unprecedented drop in personal income tax receipts, Fitch expects the effects of both the economy and the sharply reduced capital gains tax base to continue into 2003-04. Fitch stated that the lower level of revenues would have a direct impact on cash flow and could result in the State relying on the issuance of RAWs to meet its cash flow needs.

November 2001
Moody's has lowered the rating on California GO bonds to A1 from Aa3, and lowered the rating on the State's lease revenue bonds from A1 to A2. Moody's cited the expectation that the State's General Fund budget and liquidity position will weaken substantially over the next eighteen months, in light of weakness in the technology sector of the State's economy, greatly reduced state revenue projections, and the likelihood that the State will have great difficulty reaching consensus on the necessary fiscal adjustments during its upcoming budget session.

October 2001
Moody's placed California's general obligation bond rating under review for possible downgrade. Moody's cited increased concerns regarding the State's economically sensitive General Fund revenues and other recent developments that threaten the timely issuance of the power revenue bonds, the proceeds of which would shore up the State's projected liquidity position.

May 2001
Moody's lowered the rating on California's GO bonds to Aa3 from Aa2, and lowered the rating on the State's lease revenue bonds from Aa3 to A1. The downgrade reflected increasing financial risks associated with the continuing energy crisis, as well as those related to trends in the broader U.S. and California economies, and an expected deterioration in revenue forecasts.

April 2001
Standard and Poor's lowered the rating on the State of California's GO and general fund appropriation-backed bonds to A+ from AA. The downgrade reflected the mounting and uncertain cost to the State of the electrical power crisis, and its likely long-term detrimental effect on the State's economy.

Moody's changes its outlook on California's Aa2 general obligation bond rating to negative from stable, reflecting their view that the ongoing electricity crisis had increased the risks to the State's otherwise strong fiscal and economic condition.

Fitch placed California's general obligation and lease obligation bonds on Rating Watch Negative. Fitch cited potential delays in the issuance of power revenue bonds, the proceeds of which will reimburse the State's general fund for power purchases made by the State. In addition, Fitch noted that tax collections for February and March were below projections, which could reduce the projected general fund cash surplus.

January 2001
Standard and Poor's placed California's GO and general fund appropriation-backed debt ratings on CreditWatch with negative implications. The CreditWatch placement resulted from uncertainties surrounding the ability of the State to fashion a long-term solution to its power supply crisis and the ensuing financial effect.

September 2000
Moody's Investors Service raised the GO rating from Aa3 to Aa2 citing California's strong and diverse economy and increased fiscal conservatism.

Standard & Poor's raised the State's GO rating from AA- to AA citing a substantially improved general fund balance, new history of conservative fiscal budgeting, and unexpected economic growth leading to better than budgeted financial results.

February 2000
Fitch raised the GO rating from AA- to AA citing California's fundamental strengths, sustained favorable economy and financial operations.

Moody's Investors Services assigned the rating of Aa3 and revised the outlook from stable to positive. Moody's cited the State's diverse and growing economy, improved financial condition and management, rebuilding of cash and budget reserves, and increased attention to debt management issues.

August 1999
S&P raised the GO rating from A+ to AA- citing California's strong, diversified, and growing economic performance and a return to structural fiscal balance.

October 1998
Moody's raised the GO rating from A1 to Aa3 citing California's continuing economic recovery, improved credit conditions and rebuilding of budget reserves.

February 1998
S&P revised the GO rating outlook from stable to positive citing broad economic improvement and improved budget flexibility.

October 1997
Fitch upgraded GO rating from A+ to AA- citing California's economic recovery and the return of financial stability.

July 1996
S&P upgraded GO rating from A to A+ citing improved liquidity and broad economic improvement in the State with employment near its pre-recession level.

February 1996
Fitch upgraded GO rating from A to A+ citing California's economic growth, employment growth and replacement of job losses related to defense cutbacks, and projected elimination of the budget deficit by 6/30/96.

July 1994
Action from all three rating agencies:
S&P downgraded GO rating from A+ to A citing the State's continuing deferral of substantial portions of its estimated $3.85 billion accumulated deficit, including off-book "loans" to schools, continuing structural budgetary constraints including proposition 98's funding guarantee for K-14 education; overly optimistic expectation of federal aid to balance fiscal year 1995's budget and fiscal 1996's cash flow projections; and its reliance upon a blunt trigger mechanism to reduce spending if the assumption prove to be inflated.

Moody's downgraded GO rating from Aa to A1 citing the State's heavy reliance on its short-term note market to finance its cash in balance, and the likelihood that this exposure will persist for at least another two years; and the constraints imposed by voter initiatives and the political environment would likely cause fiscal stress to persist after the accumulated deficit is finally extinguished in a moderate economic growth and growing demographic pressure.

Fitch downgraded GO rating from AA to A citing the persistent deficit since 1990-91, the elimination of deficit using questionable federal aid, and the inflexible budget constraints.

September 1992
Fitch downgraded GO rating from AA+ to AA, following actions of S&P and Moody's in July 92.

July 1992
S&P and Moody's downgraded GO rating from AA and Aa1 to A+ and Aa respectively. The downgrades reflected the continuing weak financial position with little likelihood of substantial improvement in the near future. Also cited was the impasse of the 92/93 budget negativity and the issuance of substantial amounts of scrip (IOU's) to meet the State's financial obligations.

February 1992
Moody's and Fitch downgraded GO rating from Aaa and AAA to Aa1 and AA+ respectively, citing institutional constraints and economic irregularities. The magnitude of the State's infrastructure needs and other spending demands of a rapidly growing population were factors creating an underlying imbalance between ongoing spending and revenue growth.

December 1991
S&P downgraded GO rating from AAA to AA. Action was attributed to a recessionary economy, chronic deficit and the elimination of budget reserve since the end of 1990.

October 1989
Moody's upgraded GO rating from Aa to Aaa, citing restoration of adequate fund balance in the reserve for economic strength and diversity.

July 1986
Fitch upgraded GO rating from AA to AAA. (Rationale not available.)

S&P upgraded GO rating from AA+ to AAA due to "strong outlook for economic base, strong financial management, commitments to addressing pension liabilities, and a strong financial base with good prospects for maintenance of prudent reserves."

February 1985
S&P upgraded GO rating from AA to AA+ due to improved financial performance and cash position.

January 1983
S&P downgraded GO rating from AA+ to AA. Action coincided with California's first issuance of revenue anticipation notes in January 1983 which were issued, in part, to redeem $400 million in warrants issued in November 1982. California had been placed on CreditWatch by S&P in October 1982 as a result of cash shortages which led to the issuance of $400 million of warrants.

October 1982
Fitch downgraded GO rating from AAA to AA (Rationale not available.)

April 1980
Moody's downgraded GO rating from Aaa to Aa. Action was attributed to the uncertain impact of Proposition 13 and the Gann spending limit on state finances in light of the national economic slowdown.

January 1980
S&P downgraded GO rating from AAA to AA+. Action was attributed to the uncertain impact of Proposition 13 and the Gann spending limit on state finances in light of the national economic slowdown.