DC Optimism, Wall Street Pessimism

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As the festivities wrap up back east and California's top officials wing their way westward, it seems that they bring with them some of that Obamoptimism, even as some new Wall Street angst arrives first.

First, the angst. The credit rating agency Moody's Investor Services has placed tens of billions in outstanding state bonds on its watchlist, a move that signals the possibility of a downgrade in the state's creditworthiness. That includes not only general obligation bonds, but also the revenue anticipation notes (RANs) that were sold last fall to help bridge the state's cash flow problems. And yes, it could impact the state's need for additional short-term cash flow loans in the coming months.

Those cash flow problem seem particulary troubling to the agency's analysts. "We will be acutely focused on liquidity," says the Moody's report.

"This is more evidence of how urgently our state needs its legislators to act to resolve our fiscal emergency," said gubernatorial budget director Mike Genest in a written statement. "Holders of California bonds should not be penalized by a downgrade which diminishes the resale value of the bonds, just because agreement has not yet been reached."

Meantime, Democratic legislative leaders say they're confident that some federal assistance is on its way in the near future. In a conference call with reporters this morning, Assembly Speaker Karen Bass and Senate President pro Tem Darrell Steinberg said meetings with the state's congressional delegation during the inaugural festitivities were positive.

They said exact dollar amounts weren't a focus of the talks, though a $10 billion figure for the state continues to be out there and the leaders said it's a reasonable guess. Bass and Steinberg said the most likely help would come in funding for low-income health care services, education (including higher education programs), and public works/infrastructure projects.

And they think California's needs will be hard for either Congress or President Barack Obama to ignore. "There is great concern that if California gets deeper into trouble," said Steinberg, "the country will get deeper into trouble."

Legislative leaders and Governor Schwarzenegger are expected to reconvene to talk about the budget crisis tomorrow here in Sacramento.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.

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