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MOODY'S CONFIRMS STATE OF CALIFORNIA Aaa RATING

 MOODY'S CONFIRMS STATE OF CALIFORNIA Aaa RATING
 NEW YORK, Dec. 16 /PRNewswire/ -- On Friday, Dec. 13, Moody's


Investors Service confirmed the State of California's Aaa general obligation bond rating. The rating reflects the state's demonstrated management response to maintain budget stability -- a record which is now being tested -- as well as its basic credit strengths, including the large size and diversity of the California economy. Nevertheless, the current economic downturn has magnified pressures that have been building as a result of decades of population growth. These include rapidly expanding demands for infrastructure and services, particularly in the areas of education, transportation, water and corrections. While recent and current budget imbalances are partially a product of the economic downturn, they coincide with and bring attention to major policy questions arising as a result of conflicts between growth and resources.
 The state's historic willingness to address fiscal imbalance is expected to be severely tested in the coming months, as a sizable budget imbalance of at least $5.0 billion has emerged. Because a lingering economic downturn could further exacerbate the already identified budgetary problem, prompt actions to begin addressing the problem will be essential to restoring long term financial balance. Consistent with the Aaa rating, budget solutions must position the state to cope with economic weakness and should not rely on expectations of a near term economic recovery. Absent significant and meaningful budgetary adjustments over the next several months, rating actions should be expected.
 Recurring solutions to the current gap may prove extremely difficult to craft. In light of the substantial tax increases in the 1992 budget, the administration and the legislature have indicated that tax increases will not be considered, leaving only expenditure options to address the current imbalance. Options are also constrained by Proposition 98 education funding requirements and the limited revenue raising capacity of localities under Proposition 13.
 Debt ratios are moderate, yet expected future issuance will consume an increasing share of General Fund resources and therefore require prudent management in line with available resources.
 Separately, Moody's assigned a Con. (Aa) rating to the California State Board of Public Works $38,525,000 Lease Revenue Bonds 1991 Series A (Franchise Tax Board Central Office Project - Phase II) expected to be sold the week of Dec. 16. Security rests with credit standing of the State of California which agrees, through the Department of General Services, to pay base rental sufficient for debt service, subject, however, to a covenant to annually appropriate. The conditional aspect of the rating pertains to the need for project completion and payment by the state of rentals.
 Amount of net tax supported debt outstanding: $13,029,393,000.
 -0- 12/16/91
 /CONTACT: George Leung, 212-553-0342; James Dearborn, 212-553-1910; or Renee Boicourt, 212-553-7162, all of Moody's/ CO: State of California ST: California IN: SU: RTG


GK-TS -- NY055 -- 2550 12/16/91 13:17 EST
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Publication:PR Newswire
Date:Dec 16, 1991
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