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S&P issues warning about California budget gimmicks

SACRAMENTO, Calif. - A credit rating agency on Tuesday warned that California could return to budget gimmicks this summer, in part because a court has removed an incentive for lawmakers to pass a spending plan that is truly balanced.

The Standard & Poor's memo cautioned that the agency could revise its positive outlook on California's debt if the Legislature fails to pass a balanced budget by its June 15 deadline. S&P cited concerns stemming from two developments last month.

First, the deficit has grown as income tax revenue in April fell nearly $2 billion below expectations. Then a Sacramento judge ruled the state controller doesn't have authority to withhold pay from lawmakers.

That ruling undermines Proposition 25, a 2010 initiative approved by voters that bans lawmakers from getting paid if they fail to pass a spending plan. The initiative also lowered the legislative threshold for passing the state budget from a two-thirds vote, which requires support from both parties, to a simple majority.

S&P analyst Gabriel Petek wrote that the recent court decision, "coupled with what we see as reluctance among legislators to make additional difficult spending cuts, increases the risk of a less structurally balanced budget."

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