Standard & Poor's Corp. yesterday said it is studying all California country ratings in light of the new state budget, and the rating agency plans to publish the results by the end of September.
The state's fiscal 1994 budget, which began July 1, shifts $2.6 billion of local property tax revenues to schools. Counties bear a disproportionate share of that shift, though the cut is offset partly by extension of a statewide sales tax increase and other relief.
But some counties will face "sizable service reductions" if voters do not approved an indefinite extension of the sales tax increase at November's election, the rating agency said in yesterday's issue of CreditWeek Municipal.
Municipal analysts at underwriting firms also have focused their attention on California counties, saying those entities seem most vulnerable to the cuts in the face of limited revenue-raising options.
Standard & Poor's said the property tax shift "can be viewed as balancing the state budget on the backs of local governments, or as simply removing the money the state has used to prop up localities since the passage of Proposition 13," the 1978 constitutional amendment that slashed and capped property tax rates.
The rating agency also said the overall budget pinch for governments in California could spur a serious attempt to overhaul the state and local fiscal relationship.
It is unclear how a realignment of services might affect credit quality, Standard & Poor's said, "but perhaps California can use this opportunity to free itself from structures that reduce flexibility and to invent fiscal relationships."