California's Credit Rating Plummets

CALIFORNIA'S credit rating was downgraded July 6 as thousands more IOUs went into the mail and state political leaders again failed to end a budget stalemate.

Moody's Investor Service, one of three major credit-ranking agencies, reduced California's rating to AA, down from AA1 several months ago and AAA last year.

That means it will cost the state about $113 million more in interest than the approximately $640 million originally expected to sell $10 billion worth of voter-approved bonds, state treasurer Kathleen Brown said.

Moody's said the downgrade was necessary because the budget stalemate showed California was not managing its finances "in a manner consistent with its historic record of prudent and effective fiscal control."

The service also warned another change might be necessary if the budget stalemate does not end soon.

Another service, Standard & Poor's, said it would take another look at California's rating later in the month.

Despite the deepening crisis, Gov. Pete Wilson and legislative leaders had no plans to resume negotiations, which broke off about a week ago.

"They haven't asked us and we haven't asked them," said Franz Wisner, a spokesman for the governor. Mr. Wilson sent a series of messages to the Legislature on July 6, but it was unclear whether any progress had been made.