The plan signed by Gov. Arnold Schwarzenegger this week to balance the state's budget could leave California facing shortfalls in future years of more than $15 billion, according to an analysis released Thursday by a major Wall Street credit rating firm.
Moody's also criticized California's plan to take more than $1 billion from counties' redevelopment agencies this year to help close its $24 billion deficit, saying that could jeopardize those agencies' credit ratings.
Moody's is one of several firms, including Fitch Ratings, that downgraded the state's credit ratings this month after legislators failed to pass a budget by the June 30 deadline.
Emily Raimes, Moody's vice president and senior analyst, said that the plan adopted this week may stop the state's credit rating from dropping further, but added that eliminating the deficit "was achieved through a combination of cuts, raids on local funds, accounting maneuvers and one-time revenues that leave the state poorly positioned for budgetary balance in future years."
State finance officials agree California will have a deficit - they're projecting a $7 billion to $8 billion shortfall for the next fiscal year - but they cautioned that Moody's analysis was based on preliminary information that will be updated within the next two weeks.
H.D. Palmer, a Department of Finance spokesman, said that sometime in the next two weeks, department representatives will give a comprehensive budget briefing to credit rating agencies.
"Once we do all that ... we let them crawl under the hood, kick the tires, and answer any and all questions they might have about the mechanics of the budget," Palmer said.
State legislators said they were aware that the plan they adopted could lead to structural - or built-in - deficits in the future.
"Clearly we knew there would be a structural deficit because there were still some gimmicks in that budget," said Sen. Tony Strickland, R-Thousand Oaks (Ventura County).
Despite this, some lawmakers said that closing the $24 billion gap was their primary consideration and that future problems did not receive as much attention.
Structural deficit "was not a major discussion when (Senate Republicans) were talking about the budget," said Sen. Mimi Walters, R-Tustin (Orange County). "The outlying years weren't a major focal point in the discussions, at least in our caucus."
Assemblywoman Fiona Ma, D-San Francisco, agreed.
"Our main priority as a caucus was to stop the bleeding right now," she said.
California's credit rating presents a problem for the taxpayers, said State Treasurer Bill Lockyer's spokesman, Tom Dressler.
"The lower (California's) rating is, the more (taxpayers) pay on debt service," he said. "Every additional dollar they pay to investors is a dollar they cannot spend to educate their kids, protect their communities, clean up their environment, fight fires ... all the crucial public services."
Although California's credit rating hovers above junk-bond status at the moment, Dressler said investor interest seems normal.
"There was actually very decent demand for California bonds in the secondary market (in the past month)," he said. "Folks continue to believe that despite the beating our reputation has taken nationally and internationally ... California is a pretty sound investment."
A more immediate impact of the plan signed this week will be felt in the state courts.
In response to the budget cuts, the state Judicial Council voted to close all California courts on the third Wednesday of each month, from mid-September through June. The closures, authorized by a new state law, will save $94 million, the council said, and are part of a package of spending cuts and fee increases intended to bridge a $414 million gap in the judicial budget.
