1. 11/26/2018
A Rainy Day Ahead? What A Recession Or Bear Market Could Mean To The Golden State
Gabriel Petek, CFA
U.S. States Group / U.S. Public Finance
November 2, 2018
Copyright © 2016 by S&P Global. All rights reserved.

2. S&P Global Rating’s Analytic Coverage
We cover these broad sectors:
Corporates
Financial institutions
Infrastructure and utilities
Sovereigns/ international public finance $
Structured finance
U.S. public finance
Insurance companies
Funds

3. S&P Approach to U.S. States: Overall Analytical Framework
Government
Framework
Fiscal policy framework
System support
Intergovernmental funding
Financial
Management
FMA
Budget management
Economy
Demographic profile
Economic structure
Wealth and income indicators
Economic development
Budgetary Performance
Budget reserves
Liquidity
Tax/revenue structure
Revenue forecasting
Service levels
Structural performance
Debt and Liability Profile
Debt burden
Pension liabilities
OPEB risk assessment
System support
Willingness to support debt
Liquidity and capital market access
High level of expected future debt/liabilities
Weak structural budget performance
High level of contingent liquidity risk
Indicative Credit Level
Overriding factors
Holistic analysis
State
Rating + +
One-notch adjustment, subject to any applicable rating cap
Source: S&P Global Ratings U.S. States Ratings Methodology, October 17, 2016

4. Ratings Movements For U.S. States
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Source: S&P Global Ratings History of U.S. State Ratings 09/20/18. *As of 09/20/18. Includes multiple rating changes for same state within a year 4

5. Total Revenue Recovery Has Lagged Prior Economic Expansions (All States)
Source: U.S. Census Bureau

6. Percentage Change In Share Of Employment By Industry (1999-2018)

7. California General Fund Revenue Composition Increased reliance on Personal Income Tax; Decreased reliance on Sales and Use Tax
Source: California Legislative Analyst’s Office; California Dept. of Finance

8. State Sector, Total Tax Revenues Vs. Medicaid Expenditures
Source: Rockefeller Institute of Government
Source: National Association of State Budget Officers Expenditure Reports

9. Combined Medicaid, Debt Service, Pension And OPEB Contributions Share Of General Fund Expenditures

10. Major State Tax Revenues and Nominal GDP Indexed to 1995 (All States)
Source: Rockefeller Institute of Government

11. The Problem: California General Fund Total Fund Balance Pct Of Expenditures; FY 2007-2012
Source: Comprehensive Annual Financial Statements

12. The Solution (Part 1): California General Fund Expenditures; Projected And Actual
Source: LAO Fiscal Outlook and CA Dept of Finance

13. The Solution (Part 2): California General Fund Revenues; Projected And Actual
Source: LAO Fiscal Outlook and CA Dept of Finance

14. The Results: California General Fund Total Fund Balance Pct Of Expenditures; FY 2007-2017
Source: Comprehensive Annual Financial Statements

15. …But California General Fund Revenues Remain Prone To Cyclicality
Source: Source CA Dept of Finance and S&P calculations

16. California Special Fund for Economic Uncertainty and Budget Stabilization Account
Source: Source CA Dept of Finance

17. California Real State GDP Growth Rates

18. Mortgage Debt To Personal Income In California