California faces credit risks if climate aid falls, Fitch says

California's spending plan for 2023 allocated about US$54 billion over five years to advance the governor’s climate agenda. PHOTO: AFP/GETTY IMAGES

LOS ANGELES – As wildfires and deadly storms strike California, the credit quality of the state and its local governments could be impacted if there are cuts in governmental disaster support, Fitch Ratings said in a report.

“To date, state and federal disaster relief funds have largely mitigated the financial impact of weather-related events on Fitch-rated local governments,” the report said.  “However, local government credit quality could be affected if there are reductions in state and federal disaster support, and local resources are insufficient to address adverse effects.”

Earlier in January, California Governor Gavin Newsom proposed a US$223.6 billion (S$293 billion) general fund budget with a US$22.5 billion deficit, the state’s first shortfall since 2018.

The state’s current spending plan for 2023 allocated about US$54 billion over five years to advance the governor’s climate agenda. Mr Newsom’s recent proposal for 2023-2024 would reduce the five-year climate spending to about US$48 billion. 

Mr Newsom, who was sworn into his second term in January, has said he plans to keep his promises to fund programmes for education, childcare, healthcare, tackling homelessness and climate change.

The state’s non-partisan fiscal adviser, the Legislative Analyst’s Office, said the state should plan for a larger shortfall as revenue will likely come in lower than expected. BLOOMBERG

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