California Rating Cut Shows $20 Billion Gap Lifts Bond Costs

S&P yesterday lowered its assessment on $64 billion of the most-populous U.S. state’s general obligation bonds one level to A-, four steps above speculative grade, saying a plan by Governor Arnold Schwarzenegger to erase the spending gap relies too much on proposals that may not succeed.

California first, next New York.

“There is no rational way to absolve Washington of any responsibility for state budget deficits until Congress acts to remove the barriers that prevent states from reducing spending as needed to live within our means,” Schwarzenegger said in a letter yesterday to the state’s congressional delegation.

Live within our means, now that's good advice. Too bad it will fall on deaf political ears.

Source: bloomberg.com