LOS ANGELES--Rating agency officials said yesterday that California's budget negotiations have made enough headway to justify waiting slightly longer before deciding whether to change the state's bond rating.
"We've seen enough progress to see this play out a little longer," said Richard Larkin, managing director of Standard & Poor's Corp.
But Mr. Larkin cautioned that his agency could change its position swiftly if the budget talks hit an intractable snag. "We're expecting, resolution fairly shortly," he noted.
The California Senate met in rare sessions over the Father's Day weekend and passed a $56.4 billion spending plan that raises taxes and cuts spending to erase a $14.3 billion deficit. That deficit spans both fiscal 1991 and 1992, which begins July 1.
But Gov. Pete Wilson, a Republican, is encountering stiff resistance from members of his own party in the Assembly. The Assembly Republicans are especially crucial to the negotiations because some of them must be swayed to provide the necessary two-thirds majority for budget approval. Republicans hold 31 of the 80 Assembly seats.
By contrast, Senate Republicans lack similar power because there are too few of them to constitute the one-third minority needed to prevent approval of the budget, even if they vote as a block.
As a result, California's success in approving a timely budget hinges on Gov. Wilson's ability to woo the Assembly Republicans, who are demanding more permanent spending cuts and fewer tax increases.
Gov. Wilson proposes erasing about half the deficit with assorted tax increases, with a sales tax increase as the centerpiece. The state Senate voted Sunday to increase the sale tax by 1 1/4 cents.
The Legislature's constitutional deadline for passing a budget was June 15. The governor is supposed to sign the new budget into law by July 1. Those deadlines have been missed in the past, but this year, rating agency officials said they would look askance at a delay because of the magnitude of the budget deficit.
Standard & Poor's expressed concern about the situation last January when it put California's AAA general obligation bond rating on CreditWatch with negative implications. Moody's and Fitch Investors Service Inc. also rate California GOs triple-A.
Fitch officials "want to see what they do with the budget," said Claire Cohen, executive managing director of government finance at Fitch. California is not a unique case because other states also "are having a hard time getting a budget determination," Ms. Cohen said, adding that Fitch recognizes it takes time to reach a consensus on how best to address budget deficits.
With California, she noted "taxes are the sticking point," especially with Assembly Republicans.
Many of the Assembly Republicans often are referred to by others in state government as "ideologues," because of their strong passion about certain issues, particularly their abhorrence of tax increases.
Based on what Standard & Poor's has seen of the proposed budget package to date, "there's nothing on the table to downgrade [the rating] right now" if the legislation moves forward, Mr. Larkind said. Rating agency officials have stressed that they wanted structural reform -- not just a patchwork solution -- and they seem satisfied with steps such as Gov. Wilson's plan to transfer certain state health programs to counties, along with commensurate funding sources.
"From a long-term rating perspective, what we need to evaluate here is the soundness of the [budget] plan that is crafted," said George Leung, managing director and director of state ratings for Moody's. He added that missing a budget deadline by a few days at this stage is not a major problem.