california; general obligation; general obligation

California; General Obligation;General Obligation EquivalentSecurity; Joint Criteria; School StateProgramPrimary Credit Analyst:Gabriel Petek, CFA, San Francisco (1) 415-371-5042; [email protected]

Secondary Contact:David Hitchcock G, New York (1) 212-438-2022; [email protected]

Table Of Contents

Rationale

Outlook

2011 Audited Financial Statements' General Fund Liabilities

Debt

Related Criteria And Research

March 30, 2012

www.standardandpoors.com/ratingsdirect 1

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California; General Obligation; GeneralObligation Equivalent Security; Joint Criteria;School State ProgramCredit Profile

US$890.0 mil var purp GO bnds due 04/01/2042

Long Term Rating A-/Positive New

US$410.0 mil var purp GO rfdg bnds due 04/01/2042

Long Term Rating A-/Positive New

California GO

Long Term Rating A-/Positive Affirmed

California go adj rate bnds (wkly interest rate) 2003 B-1 thru B-4

Long Term Rating A-/A-1/Positive Affirmed

California GO bnds (daily interest rate) ser 2003 A-1

Long Term Rating AAA/A-1 Affirmed

Unenhanced Rating A-(SPUR)/Positive Affirmed

California (Kindergarten-Univ Pub Ed Fac) ser 2004 B



Rationale

Standard & Poor's Ratings Services assigned its 'A-' long-term rating to California's estimated $890 million in

tax-exempt general obligation (GO) and $410 million in tax-exempt GO refunding and advanced refunding bonds.

At the same time, we affirmed our 'A-' long-term ratings and underlying ratings (SPURs) on California's $72.47

billion of outstanding GO debt. Simultaneously, we affirmed our 'A-' long-term rating on the state's $1.9 billion of

Proposition 1A bonds. The outlook on all of the aforementioned ratings is positive.

We also affirmed our 'A-/A-1' rating on the state's variable-rate GO bonds (see "Debt" section below), based on

joint support.

The ratings reflect our view of the state's:

• Economic depth and diversity, as well as its prominent higher-education institutions, which attract and generate

businesses in innovative sectors, helping to position California as a leading venture capital recipient state;

• Volatile revenue base linked to difficult-to-forecast financial market performance;

• Governance rules that contribute to fiscal decision making that is at times delayed and what we consider to be

suboptimal; and

• Large debt, retirement benefit, and budgetary liabilities, the repayment of which we believe may siphon future

state resources and, in the case of the latter set of obligations, not add to the state's asset base or infrastructure.

Recent developments that contributed to our Feb. 14 assignment of a positive outlook to the ratings include our

Standard & Poors | RatingsDirect on the Global Credit Portal | March 30, 2012 2

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view of the state's:

• Nascent record of structurally oriented solutions for projected budget gaps;

• Development of a specific plan to resolve its $33 billion in budget liabilities over a four-year time horizon;

• Commitment to and follow-through on the midyear trigger spending cuts provided for in the fiscal 2012 budget;

• Improved budgetary adoption framework, reducing the likelihood of very late budget enactment; and

• Improving economic outlook including steady, albeit gradual, job growth.

Recent tax receipt figures suggest that tax collections in March and April, which are among the most significant

months of the year for the state's fiscal condition, may underperform budget-based cash flow estimates. The positive

outlook may withstand this scenario, which we believe would likely add to the necessity for timely and decisive

corrective budget action on the part of the legislature and governor.

The state's general fund serves as the source of all GO bond repayment, to which the state has pledged its full faith

and credit. State funding to the public kindergarten through grade 12 school systems and institutions of higher

education is the only obligation that, according to the state's constitution, has a higher priority than GO debt service

payments. The state's debt obligations are paid in the following order: GO bonds, Proposition 1A bond payments,

and lease- and appropriation-backed debt service.

Several of California's revenue- and expenditure-related institutions impede improvement in the state's fiscal

position. Given that most of California's debt service for its GO and other bonds' is funded from the state's general

fund, the state's fiscal position is central to its credit quality and, ultimately, its ability to fund payments on its

obligations. The various fiscal institutions we identify below bear on our view of the state's governmental

framework, financial management, and budgetary performance, all of which are factors in our rating criteria for

U.S. states.

On the revenue side of its income statement, California's key general fund sources depend on a concentrated portion

of its taxpayer base and exhibit a relatively high degree of cyclicality. According to the state's constitution,

lawmakers need to assemble an unusual level of consensus (two-thirds of the legislature) to raise taxes and most

fees. In addition, compared with numerous other states, California operates with relatively infrequent updates to its

revenue forecast. And enacted budgets are allowed to assume revenue estimates that have been agreed upon through

political negotiations between the legislative and executive branches of state government.

Spending-side fiscal management in California is also complicated, not least because of how much the state has

already reduced its prior expenditure baseline. In our view, additional rounds of cuts, even assuming voters pass

new taxes in November, could encounter lawmaker resistance. From a practical standpoint, cutting state spending is

not straightforward for approximately two-thirds of the state's budget. One result of this is that cuts in recent years

have tended to heavily concentrate in areas that lack legal protection or have fewer federal consent requirements.

All of this being said, the recent dissolution of local redevelopment agencies (RDAs) in California eliminated the

state's indirect subsidy to local government economic redevelopment activities, a change with favorable fiscal

implications for the state's general fund. Furthermore, now that budget passage occurs with a majority vote of the

legislature, we anticipate the state to reach a budget agreement close to on time, despite the complications

mentioned above. Finally, recent budget adjustments, particularly many of those enacted with the current budget,

offer recurring fiscal benefit and, we believe, have placed genuine budget balance within reach.


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California; General Obligation; General Obligation Equivalent Security; Joint Criteria; School State Program

Based on the analytic factors we evaluate for states, on a four-point scale in which '1' is the strongest, we have

assigned California a composite score of 2.7. (For a detailed discussion of the scoring of the individual factors, see

the full analysis published on Feb. 23, 2012).

Revenue characteristics

Revenue experience. California's revenues are prone to volatility and, relative to other states, tend to be correlated

with financial markets more than underlying economic trends. When California's real GDP declined 3.7% in

calendar year 2009, state general fund revenues responded with a disproportionate 19.3% drop in that fiscal year,

which was more reflective of conditions in the financial markets. The S&P 500 Stock Index, for example, lost 28%

of its value during the 2009 fiscal year ended June 30. For fiscal 2013, the governor's original and revised tax

initiative plans -- which both include raising income tax rates on high-income earners – would, in our view,

exacerbate the state's propensity to move with markets because of the importance of capital gains for these

taxpayers and because of the significance of high income earners to the state's overall revenues. According to the

franchise tax board, the top 1% paid 37% of income taxes in 2009 (the most recent available), which comprised

52% of general fund revenues. Therefore, the top one percent of income tax payers paid 19% of the state's general

fund revenue that year. This volatility does offer an upside, however. General fund revenues surged 22% in fiscal

2000, reflecting the dot-com era gains in the equity markets. But rather than reserve a portion of any above-trend

revenues, California's rules governing its reserves have allowed spikes in revenues to be built into the state's

spending base. An upswing in state revenue coupled with the lack of an effective reserve requirement can, therefore,

set up conditions for future budget stress when revenues subsequently drop.

Revenue-raising inflexibility. California's constitution requires that two-thirds of the state legislature approve any

tax or fee increase that would benefit the state's general fund. Steadfast opposition by a minority block of state

legislators can -- and has -- effectively removed from the table all tax- and fee-raising proposals originating in the

legislature. Statewide taxes may be raised by a majority vote of the electorate, but the process of qualifying and

campaigning for an initiative is time consuming and costly. Potential revenue gains from tax initiatives are also

uncertain since voters have, in the past, regularly rejected such proposals.

Revenue forecasting. Relative to numerous other states, California's revenue forecasts are updated infrequently and,

in our view, lack independence. These attributes contribute to the state's low budget performance score and rating.

California's revenue forecasts are updated twice per year, in December and May, whereas numerous other states,

including those with less cyclical revenue trends, update their revenue forecasts more frequently and commonly at

quarterly intervals. The effects of infrequent revenue updates are exacerbated by the importance to the state's

revenue experience of the financial markets and of idiosyncratic events, such as initial public offerings and investor

behavior regarding capital gains.

California's revenue forecasts also lack independence in our view and are subject to negotiation between the

executive and legislative branches, which we believe can give rise to unfounded revenue assumptions. Fiscal 2012

was an example of this when the state -- late in the budget development process -- recognized $4 billion in additional

revenue to help balance the budget. Trigger cuts were included in the budget to partially offset the potential for this

revenue not materializing. But by design, the trigger cuts did not fully offset the potential shortfall. When the state

Department of Finance (DOF) updated its revenue projection in December 2011, it forecast $2.2 billion less than the

enacted fiscal 2012 budget had assumed. This anticipated revenue deficiency triggered $981 million in midyear cuts,

which was helpful but insufficient to offset the expected revenue shortfall.

Key California Economic And Revenue Assumptions For Fiscal 2013

Bil. $


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Key California Economic And Revenue Assumptions For Fiscal 2013 (cont.)

Department of Finance(Governor)

Legislative Analyst's Office(nonpartisan)

Standard & Poor's RatingsServices

Fiscal year 2013 general fund revenue (notax increase)

90.7 89.4 N/A

Additional revenue through fiscal 2013(original tax initiative)

6.9 4.8 N/A

Additional revenue through fiscal 2013(revised tax initiative)

9 6.8 N/A

S&P 500 Stock Index % change (2012)* 1.98 6.8 10.3

CA gross domestic product (2012) (%) 3.8 3.8 N/A

U.S. gross domestic product (2012) (%) 1.7 2.2 2.1

N/A--Not applicable. * LAO estimate reflects change in average monthly level; DOF and S&P estimates reflect Dec. 2011 vs. Dec. 2012 estimate

Expenditure characteristics

Political resistance. During the past several years, California lawmakers have enacted large spending cuts to a wide

range of state programs and services, but, in our view, have more recently begun to show signs of growing

reluctance to impose additional cuts to social service and other programs. Enacted budgets in fiscal years 2008

through 2012 reported total program reductions or savings of more than $47 billion to help solve a cumulative

budget deficit during these years of more than $100 billion. Although these spending cuts have helped preserve the

state's credit quality, the governor proposes $4.2 billion in additional cuts even while assuming voters approve the

tax initiative. To put California's spending level in perspective, Governor Jerry Brown's fiscal 2013 budget proposes

to spend $18.1 billion (16%) less in fiscal 2013 than the DOF projected when the fiscal 2010 budget was enacted.

The governor projects that, absent his proposed solutions, the state faces a $9.2 billion deficit through fiscal 2013.

Of this, $5.1 billion is attributable to fiscal 2013. As recently as October 2010, the state's nonpartisan Legislative

Analyst's Office (LAO) projected a deficit of $22.4 billion in fiscal 2013. And not all of the reductions are relative to

the prior spending trajectory. Compared with the enacted fiscal 2008 general and all-funds budget of $103 billion

and $138 billion, respectively, the fiscal 2012 general and all-funds budget is $86.5 billion and $129 billion,

respectively. The general and all-funds budget in fiscal 2012 is, therefore, 16% and 6.5% smaller than it was,

respectively, four fiscal years earlier. Measured as a percentage of total personal income in the state, these changes

have brought state general fund spending to 5.16%, or its lowest level since 1973.

In our view, a waning appetite for more budget austerity among lawmakers could present a hurdle to timely and

realistic budget solutions, which could interfere with the potential for the state's credit quality to strengthen. We

have already seen indications of reduced willingness to embrace more cutbacks. The governor's budget plan assumed

that the legislature would enact by March 1, 2012 some of his proposed $946 million of reductions for fiscal 2013

to the CalWORKs program to allow for implementation time. The legislature, however, deferred taking early action

and has indicated a preference to see what the updated revenue numbers suggest is necessary. If resolve among

lawmakers to follow through on passing more structurally aligned budgets were to weaken, the state's potential for

a higher rating would likely diminish.

One reason we revised the state's rating outlook to positive is that, in fiscal 2012, we saw a reversal in the state's

tendency to rely on temporary or nonrecurring measures to solve its projected budget deficit. Whereas in the period

covering fiscal years 2008 through 2011, when approximately 80% of the deficit solutions were temporary or

short-term, only about 30% of the enacted solutions were nonrecurring in nature in fiscal 2012. The DOF estimates

that 77% of the fiscal 2013 proposed deficit solutions are ongoing.


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Practical limitations. Even with sufficient political will to do so, California's ability to enact cuts to some of its

significant spending areas is limited. As proposed for fiscal 2013, state spending for education, Medi-Cal, and

corrections combine for $61.3 billion, or 66% of general fund expenditures. Cuts to spending in these areas

typically require something beyond agreement by a simple majority of the legislature. Depending on the specific

program affected, enacting approved cuts may depend on federal consent, favorable court rulings, supermajority

legislative agreement, or they may result in higher costs to the state in another portion of the budget.

Kindergarten through community colleges (K-14). The largest state spending item is for K -14 education, which is a

function of a constitutionally based funding formula (Proposition 98). This formula generally requires that at least

39% of the state general fund be spent on education. For fiscal 2013, the state budget proposal anticipates $37.5

billion in Proposition 98 spending, equal to almost 40% of projected revenues. The spending requirement -- which

can continue to grow after budget enactment -- can be suspended with a two-thirds vote of the legislature. But

relative to other state priorities, we see strong political support for education, making this an unpopular avenue

among lawmakers. Furthermore, even when the funding guarantee is suspended, such action by the legislature

generates a state obligation (referred to as its "maintenance factor") to restore the funding level at some point in the

future. The state's maintenance factor currently stands at an estimated $9.7 billion. Unable or unwilling to suspend

the funding guarantee, beginning in fiscal 2002, the state has increasingly opted to defer rather than cut school

funding. As of 2012, the state had amassed $10.4 billion in inter-year payment deferrals to schools.

Medi-Cal (the state's Medicaid program). Medi-Cal is another large general fund expense, at $15.1 billion in the

governor's proposed budget. By participating in the federal Medicaid program, the state avails itself of federal

matching funds but, in exchange, its ability to make program reductions to Medi-Cal is constrained. Although the

state has enacted approximately $1.7 billion in Medi-Cal cuts in the fiscal 2012 budget, roughly $1 billion of these

have yet to be realized because of delayed or denied federal consent or adverse court rulings. Furthermore, the

federal funding formula for Medicaid, which is based on state per capita income relative to the nation, places

California at a fiscal disadvantage. Despite having had a higher share of state residents enrolled in Medi-Cal at some

point during the year (29%) than any other state had enrolled in their respective Medicaid programs, California

receives the minimum federal matching rate of 50% because of its high per capita income (107%) relative to the

nation. This reimbursement rate is lower than 36 other U.S. states and is below the national average matching rate

of 59.6% in 2012 and 2013, according to data from the Kaiser Family Foundation and Federal Centers for

Medicare and Medicaid Services.

Corrections and rehabilitation. State spending on corrections and rehabilitation is proposed in the budget at $8.7

billion for fiscal 2013 and has been a regular source of budget pressure. A district court appointment in 2006 of a

federal receiver to operate the state's medical health care portion of its prison system reduced state discretion over a

significant portion of its corrections budget. A related and subsequent decision by a three-judge panel, affirmed by

the U.S. Supreme Court in 2011, requires that the state reduce its prison population by approximately 40,000 by

June 27, 2013. The governor's realignment program, introduced in his fiscal 2012 budget proposal, is helping the

state achieve the inmate population reduction targets. After commencing in October, the plan reduced the state's

prison population by 20,000 (to 137,000) within two months by diverting some nonviolent inmates to county

custody. This has lowered the state's prison population to 170% of system capacity from its peak of approximately

200%. Although the reform reduces state expense for corrections by $1.1 billion in the proposed fiscal 2013 budget,

the governor's realignment initiative still represents a cost to the state. To compensate counties for the increased

corrections responsibilities (and their responsibility for the delivery of several other services), the governor's plan

includes sending to the counties $5.8 billion of sales tax and vehicle license fee revenue that would otherwise flow to

the general fund. The governor seeks to codify the diversion of these funds to the counties as part of his tax initiative

going before voters in November 2012.


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Redevelopment reform. Legislation that dissolved local RDAs in February 2012 represents a material source of

recurring fiscal benefit to the state general fund. Because the minimum funding guarantee for education under

Proposition 98 is met with local property tax and general fund revenue, the prior diversion of property taxes away

from schools to RDAs was backfilled by the general fund. In effect, the general fund was subsidizing the activities of

local RDAs. In a post-RDA environment, the $5.2 billion of tax revenue (estimated for fiscal 2012) will be applied

first to existing RDA bonds with the remainder distributed to the local agencies according to prior law. The LAO

estimates that more than half of the property tax revenue will go to school districts. The DOF estimates that, no

longer having to backfill this portion of school district funding, the state will realize a general fund benefit of $1.1

billion in fiscal years 2012 and 2013. Savings to the general fund are likely to grow over time as RDA debts are

gradually retired and as assessed property values throughout the state appreciate.

Cuts with longer-term credit implications. One result of the various constraints on the state's ability to make fiscal

adjustments is that cuts have tended to concentrate among programs not shielded by law or federal oversight.

According to the LAO, excluding the property tax portion of higher-education funding provided to community

colleges under Proposition 98, since fiscal 2008, general fund support for public higher education has declined 21%

to a proposed $9.4 billion for fiscal 2013. The decline in general fund support would be larger but for the

governor's proposal to include general fund debt service paid on behalf of higher-education systems; specifically, the

University of California, California State University, and the Hastings College of the Law. The net effect of the

funding changes has been to shift the total education cost increasingly to student tuition and away from the state

general fund. We have viewed the state's public institutions of higher education as strengthening features of its

economy score and overall rating. We believe an erosion of student accessibility and deterioration of the global

competitiveness of the state's higher education system could gradually undermine a key strength to the state's

economic development prospects.

In recent years, the state has exacted savings by approving temporary cuts to its CalWORKs program (the state's

version of the federal Temporary Assistance for Needy Families block grant program) by reducing support to

counties for child care and employment services. The expiration of these temporary program changes and a higher

caseload level (roughly 597,000 projected for fiscal 2013 from 460,000 in 2007) put the CalWORKs program on a

path to cost $5.8 billion in fiscal 2013, up from $5.4 billion in fiscal 2012. However, the governor proposes

significant reforms that would reduce cash grants to recipients and tighten eligibility requirements among current

enrollees for welfare-to-work services, for total program savings of $1.1 billion. The governor's reform package

would also reduce caseloads to 324,000 by transferring 296,000 caseloads to a newly established Child

Maintenance Program. Costs associated with the new program combined with the CalWORKs reductions result in a

projected $946.2 million of net general fund savings in fiscal 2013 according to the DOF.

Outlook

The outlook is positive. The state's ability to pass a budget out of the legislature with a majority vote (as opposed to

the previous two-thirds majority) reduces the recurring risk of liquidity crises resulting from late budget enactment.

We also believe that the state's recent structural spending reductions have helped lay the groundwork for improved

cash performance on an intrayear basis. However, as the current fiscal year demonstrates, the benefits to state

liquidity from these fiscal adjustments have yet to be fully realized. The possibility for a higher rating, therefore,

depends upon our assessment of the state's ability to better unify its budget and cash performance. In our view, the

timely enactment of a fiscal 2013 budget with what we consider to be sufficiently credible deficit solutions -- such as

definitive trigger cuts not subject to political negotiation after the state's November election -- that allow the state to

finance its annual cash flow borrowing would also help support a higher rating. We could raise the ratings within


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the two-year time frame of the outlook if the state enacts a timely fiscal 2013 budget with realistic and largely

structural solutions to its projected budget deficit.

Conversely, we could return the outlook to stable if, in our view, intransigent budget negotiations emerge despite the

state's majority vote procedures or if the legislature's willingness to pass structurally oriented solutions, such as

those in the proposed budget, were to weaken. In addition, new negative credit pressure remains a risk, in our view,

because of the state's ongoing high dependence on personal income tax and high-income earners in particular. We

have seen that this increases the correlation of the state's financial performance with that of the equity markets,

Depending on the degree of any possible downturn, state revenue collections could weaken enough to exert new

negative pressure on the rating. (For more information, see the Frequently Asked Questions published March 7,

2012.

2011 Audited Financial Statements' General Fund Liabilities

With the release of its 2011 audited financial statements in March 2012, California implemented its reporting under

Governmental Accounting Standards Board (GASB) Statement No. 54, which provides a new classification for the

reporting of government funds and fund balances. Under the new reporting method, California has a negative total

fund balance in its general fund of $19.99 billion. The general fund unrestricted fund balance (made up of

committed, assigned, and unassigned balances) was negative $20.2 billion, equal to 22.4% of general fund

expenditures. Although we consider this low, the state operates its finances from a budgetary basis of accounting. A

significant portion of the negative fund balance stems from liabilities the state has accrued but has not made an

appropriation to fund. These type of liabilities sum to $13.5 billion as reported in the state's fiscal 2011

comprehensive annual financial statements. By reporting according to GASB 54, the state included $194 million of

revenue in its general fund that is not revenue from a budgetary perspective. Most of the added revenue is from

unemployment programs.

Major contributors to the negative fund balance mentioned above are deferred apportionments for kindergarten

through grade 14 education ($7.5 billion), medical assistance ($1.3 billion), and $813 million of June 2010 payroll

that was deferred to July 2011 (fiscal 2012) from June 2011 (fiscal 2010). The state general fund is also carrying

approximately $4.1 billion in interfund payables -- amounts due to other state funds that have previously been

loaned to the state general fund. In our view, negative ending positions in the general fund reflect the effect of the

recession on the state's revenues and the budgetary response of shifting or deferring some payments into the future.

Much of the recession's effect on general fund revenue was realized in 2009 and was reflected in a GAAP-based

decline of 13.7% that year. The severity of the recession can be demonstrated by noting that although state general

revenues grew by $10.1 billion (10.7%) in fiscal 2011, they were still $5.1 billion lower than revenues in fiscal

2008. In the general fund alone, revenues increased $8.4 billion (9.8%) in fiscal 2011, but this remains 4.4% below

where they were in fiscal 2008. Although the state continued to rely on internal borrowing throughout fiscal 2011

for its cash management, we began to observe a decline in this dependence. As of June 30, 2011, borrowing from

other state funds had decreased by $1.3 billion to $8.9 billion compared to the end of the prior fiscal year. We

believe the fiscal 2012 budget included improvements to the state's fiscal structure and should help the state reduce

these balances further.


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Debt

As of March 1, 2012, the state had approximately $91.37 billion in GO, Proposition 1A, lease revenue, and

economic recovery (sales tax) bonds outstanding. Tax-supported debt totaled $88.91 billion when excluding $2.47

billion of lease-revenue bonds funded by the Regents of the University of California.

We anticipate that annual debt service on the state's obligations as a percentage of general fund expenses will either

remain at present levels or increase somewhat. This will keep debt service at moderately high levels, in our view, as

the state implements its long-term strategic growth plan with $42.7 billion in GO bonds that voters authorized in

2006. Since 2006, voters and the state legislature have approved the issuance of more than $53.6 billion of GO and

$12.1 billion of lease-revenue bonds. These authorizations and the subsequent issuances have raised the state's debt

levels. Whereas the state had $44.85 billion of general fund-supported (GO and long-term revenue bonds)

outstanding as of July 1, 2006, $85.8 billion was outstanding as of Jan. 1, 2012. General fund-supported debt

equaled 3.3% of general fund expenditures in fiscal 2004 but has more than doubled to 7.9% in fiscal 2012. We

still consider this low, but debt service would be moderately high in our view at 8.0% of expenditures. The state still

has approximately $45.5 billion of authorized and unissued bonds.

Debt ratios are currently moderate, in our view, given the state's population and the size of its economy. Total per

capita tax-supported debt is $2,432 (based on a population of 37.6 million per U.S. Census Bureau estimated 2011

data). Balances on these debt obligations are equivalent to 5.45% of total personal income (2011) and 4.81% of

state GDP (2010). Gross annual debt service in fiscal 2012 (not including offsets or the federal Build America Bonds

subsidy and excluding the above-mentioned University of California lease-revenue bonds), is moderately high, in our

view, at approximately $7.56 billion (estimated by Standard & Poor's), or 8.61% of a total of $87.82 billion in

budgeted general and economic recovery fund expenditures. If the GO economic recovery bonds' debt service is

excluded, assuming it is funded by the pledged sales and use tax revenue, debt service is low, in our view, at 7.64%

of general fund expenditures.

The state's debt is structured conservatively, in our view, in that the state has limited variable-rate exposure (just

4.47% of a total of $91.37 billion) and has not entered into interest rate swaps or other derivatives. The DOF

estimates that the state may issue $5.2 billion of new GO bonds (some initially may be issued as commercial paper)

and $1.84 billion of lease-revenue bonds through the fall of 2012.

Variable-rate GO bonds

The rating on the state's adjustable rate GO bonds, series 2003 B-1 through B-4, is 'A-/A-1'. The long-term rating

on these bonds reflects that of the state's long-term credit quality while the short-term component reflects the rating

of the lowest of the three entities providing liquidity support: California State Teachers Retirement System

(AA/Stable/A-1+), California Public Employees Retirement System (A-1+), and JPMorgan Chase Bank N.A.

(A+/Stable/A-1).

In addition, the ratings are 'AAA/A-1+', 'AAA/A-1', and 'AAA/A-2' on some of the state's GO variable-rate demand

bonds. The long-term component of the ratings is based jointly (assuming low correlation) on that of the obligor,

California, and the various letter of credit (LOC) providers. The short-term component of the ratings is based solely

on the ratings on the LOC providers. The banks providing LOC support to the various issues are:

• Citibank N.A. (A/Negative/A-1);


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• Royal Bank of Canada (AA-/Stable/A-1+);

• Barclays Bank PLC (A+/Stable/A-1);

• Bank of America N.A. (A/Negative/A-1);

• JPMorgan Chase Bank N.A. (A+/Stable/A-1);

• KBC Bank N.V. (A-/Stable/A-2);

• The Bank of Nova Scotia (AA-/Stable/A-1+); and

• Bank of Montreal (A+/Stable/A-1).

Related Criteria And Research

• USPF Criteria: State Ratings Methodology, Jan. 3, 2011

• USPF Criteria: Municipal Applications For Joint Support Criteria, June 25, 2007

Ratings Detail (As Of March 30, 2012)

California go adj rate bnds (wkly interest rate) ser 2003 C-3 & C-4



California various purp go bnds dtd 02/01/2004 due 02/01/2005-2029 2033-2034


California various purp GO bnds & GO rfdg bnds dtd 02/01/2007 due 12/01/2007-2029 2032-2036


California various purp GO bnds & GO rfdg bnds dtd 02/01/2007 due 12/01/2007-2029 2032-2036


California var purp go bnds dtd 05/01/2003 due 02/01/2008-2028 2032 2033


California var purp GO bnds


California GO


California GO adj rate bnds (weekly interest rate) ser 2003 C-1 dtd 04/15/2003 due 05/01/2033



California GO adj rate bnds (weekly interest rate) ser 2003 C-2 dtd 04/15/2003 due 05/01/2033

Long Term Rating AAA/A-1+ Affirmed


California GO bnds dtd 02/01/2003 due 02/01/2008-2027 2029 2031 2033


California GO bnds (daily interest rate) ser 2003 A-2 & A-3 dtd 04/15/2003 due 05/01/2033



California GO VRDB prog



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Ratings Detail (As Of March 30, 2012) (cont.)


California GO VRDB prog



California GO VRDB prog ser 2005B-3 dtd 11/17/2005 due 05/01/2030



California GO VRDB prog ser 2005B-5



California GO VRDB prog ser 2005B-5



California GO VRDB prog ser 2005 A-1-1 dtd 11/17/2005 due 05/01/2040



California GO VRDB prog ser 2005 A-2-1 dtd 11/17/2005 due 05/01/2040



California GO VRDB prog ser 2005 A-3 dtd 11/17/2005 due 05/01/2040



California GO VRDB prog ser 2005 B-1 dtd 11/17/2005 due 05/01/2040









California GO VRDB prog ser 2005 B-6 due 05/01/2040



California GO VRDB prog ser 2005 B-7 due 05/01/2040



California GO (wrap of insured) (AMBAC & AGM) (SEC MKT)


California GO (wrap of insured) (AMBAC & BHAC) (SEC MKT)



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Ratings Detail (As Of March 30, 2012) (cont.)

California GO (wrap of insured) (AMBAC) (ASSURED GTY) (SEC MKT)


California GO (wrap of insured) (FGIC & AGM) (SEC MKT)


California GO (wrap of insured) (FGIC & BHAC) (SEC MKT)


California GO (wrap of insured) (MBIA) (National) (AGM) (SEC MKT)


California GO (wrap of insured) (MBIA) (National) (ASSURED GTY) (SEC MKT)


California GO (wrap of insured) (SYNCORA GTY) (BHAC - SEC MKT)


California GO (AGM) (SEC MKT)


California GO (ASSURED GTY) (SEC MKT)


California GO (MBIA) (National) (SEC MKT)


California GO (MBIA) (National) (SEC MKT)


California GO


California Infrastructure & Econ Dev Bnk, California

California

California Infrastructure & Economic Development Bank, state sch fd apportionment lse rev rfdg bnds (Oakland Unif Sch Dist Fincg)


California Infrastructure & Econ Dev Bnk (California) state sch fd apportionment lse rev bnds (King City Jt Un High Sch Dist Fincg) ser 2010


California Infrastructure & Economic Dev Bank (California) st sch fd apportionment lse rev bnds (Vallejo City Unif Sch Dist Fincg)


California Infrastructure & Economic Dev Bank (California) st sch fd apportionment lse rev bnds (West Contra Costa Unif Sch Dist Fing)


California Statewide Communities Dev Auth, California

California

California Statewide Communities Dev Auth (California) rev bnds (Prop 1A Prog) ser 2009


Many issues are enhanced by bond insurance.


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california; general obligation; general obligation

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