Moody's Downgrades Status of California Bonds

Gov. Arnold Schwarzenegger told state employee unions Tuesday his administration would cut another 2,000 jobs to help close California's $26.3 billion budget deficit.

Meanwhile, Moody's Investor Services downgraded California bonds to near-junk status, from A2 to Baa1, and placed the state's credit rating on watch for possible further reductions.

Moody's said the budget deadlock had put constitutionally required payments to bond holders at risk.

"If the state gets to a position where it is unable to make priority payments, a multi-notch downgrade may result," Moody's said in a statement.

The state's cash crisis has forced state Controller John Chiang to issue nearly 130,000 IOUs worth a total of $436 million to state vendors so far.

The administration previously sent layoff notices to 4,600 state employees, but it was unclear how many workers will actually lose their jobs because many still have an opportunity to move into special-fund posts that weren't covered by the layoffs.

The layoffs won't take effect until September, said Lynelle Jolley, a spokeswoman for the Department of Personnel Administration.

Jim Zamora, a spokesman for Service Employees International Union Local 1000, the largest state employee union, questioned the timing of Schwarzenegger's announcement Tuesday of another 2,000 job cuts.

The move came as budget talks resumed between the Republican governor and the four top legislative leaders.

"We recognize the seriousness of the budget crisis, but we also wonder if this is just another ploy by the governor to use state workers as pawns in his budget negotiations," said Zamora, whose union represents about 95,000 state employees.

Schwarzenegger has also imposed three furlough days a month for many workers and proposed a 5 percent pay cut for state workers that would have to be agreed on as part of budget negotiations.

Some of the latest job cuts will come through attrition, said Victoria Bradshaw, the governor's cabinet secretary.

She said the governor's recent addition of the third furlough day might work as an incentive for senior staffers to retire because some will now earn less working than they would from their pensions.

The three furlough days brings the total pay cut to about 14 percent.

The Legislature has until the end of August to balance the budget for the current fiscal year before jeopardizing paychecks for government employees and others.

(AP)