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Reason Foundation

Nearly junk

Ted Balaker
December 8, 2003, 6:14pm

California's bond rating drops again: Moody's Investors Service cut its bond rating for the state of California on Tuesday, the second such downgrade in five months, pushing the state's already battered financial rating closer to the "junk" level. The rating service noted the recent cut in the state's vehicle license fee and "a continuing inability to reach consensus on solutions to its budget and financial problems." Moody's dropped the state's rating from A3 to Baa1, just three steps above junk, the level at which institutional investors typically cannot invest in the securities. California's bond rating was already the lowest of any U.S. state's, and a ratings cut makes borrowing more expensive because the state must offer a higher return to compensate investors for the higher risk.

Ted Balaker is Producer


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