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Lockyer: U.S. Downgrade Shouldn’t Affect State Credit

Posted on Tuesday, August 9, 2011 11:44am

The federal government credit downgrade and Wall Street selloff are raising questions about their impact on California. But , a credit rating change might not be the state’s biggest concern.

State Treasurer Bill Lockyer doesn’t think California’s credit rating is in danger. His spokesman, Joe DeAnda, said, “getting a budget deal on-time, a balanced budget, making a lot of the difficult decisions that weren’t made in the past, I think that definitely will play well for California.”

Economist Stephen Levy doesn’t think the state’s credit rating will falter. But the reaction to the rating drop – like the 600-point selloff on Wall Street – grabbed his attention. Levy keeps a close eye on the state budget at the Center for Continuing Study of the California Economy … and he says the big question right now is whether the turmoil could hurt state revenues.

According to Levy, “I don’t see why California’s bond rating or interest rates would be hurt in the negative because of all of this. I am worried that that the fear and beginning of panic will come back and hurt the economy, and that will hurt the state budget.”

That budget relies on four billion dollars in extra revenue. A few weeks ago, Levy says, he thought California’s tech sector would fill that gap alone. But if there’s another recession or 2008-style hysteria, he says, all bets are off.

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