If California can reach a balanced budget by summer, the state’s low credit rating may turn a corner.
On Tuesday, Standard & Poor's improved California's bond outlook from stable to positive.
The move is a sign that the state might be poised for a credit-rating upgrade if lawmakers continue to cut spending and if tax revenue meets projections.
Although California still faces a $9.2 billion deficit, the credit rating agency said the state has corrected a significant portion of its budget imbalance.
"We are revising the outlook because, barring any other credit deterioration, (we) think the state is poised for credit improvement -- and potentially a higher rating -- pending its ability to better align its cash performance and budget assumptions," S&P analyst Gabriel Petek said in a statement.
A higher rating is contingent on sufficiently credible solutions to the state's $9.2 billion deficit the report said.
That would include automatic spending cuts that are not subject to changes after the November election, if voters reject Gov. Jerry Brown's tax hikes.
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Brown has proposed a mix of cuts and temporary tax hikes but Democrats who control the Legislature are opposed to more cuts.
Revenues, however, remain a concern. Last week, the state controller's office released its latest monthly report showing tax collections came in $528 million below the January projections in the governor's proposed budget.
"Our rating is still near the bottom when compared to other states," Senate Republican Leader Bob Huff, R-Diamond Bar, said in a statement. "While this is movement in the right direction, Californians should delay celebration until we're closer to the top than the bottom."
The last time the rating agency gave California a positive outlook was June 2007, when it had an A-plus rating. It now has a rating of A-minus.
California's outlook improved from negative to stable last July after the last budget was passed.
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