California's general obligation bonds lost their coveted AAA rating from Standard Poor's today because of fears the state's 10 million voters will again cut taxes.
In making the announcement that the bonds had been demoted to an AA+ rating, Standard & Poor's said "Recent and prospective developments in the state, largely the result of voter initiatives in 1978, 1979 and 1980, significantly after California's financial complexion at both state and local levels."
Deputy State Treasurer Grover McKean called the rating a "potential tragedy," saying it could mean higher interest rates for a variety of self-liquidating debt programs including veterans home loans and the California water program, as well as other state programs.
In 1978, the state's voters passed the Jarvis-Gann property tax initiative, cutting local property taxes by $7 billion. The state legislature then provided $4 billion in bailout funds to local governments from surplus revenues.
Then, last November, voters passed an initiative sponsored by tax gadfly Paul Gann to limit the size and growth of state government. Because the state is supporting so many local programs, the state's surplus is expected to shrink to $112 million by July of 1981.
In the 1980 primary, voters will rule on the so-called "Jarvis II" proposal, which if passed would cut personal income taxes in half.