California's debt 'nearly junk'

Mr Davis faces an unprecedented 'recall' vote

The California's state debt has been downgraded to two points above junk status by US credit ratings agency Standard & Poor's (S&P).

S&P slashed its rating on California's $27bn of debts as Republicans succeeded in forcing a vote on 7 October on whether Democrat governor Gray Davis should keep his job.

California, the richest state in the US, faces economic turmoil unless it can pass a state budget.

S&P managing director Steve Zimmerman said: "This recall election just makes it more difficult to focus on the job in hand."

Budget crisis

"Today's S&P downgrade is our latest and loudest wake-up call," Governor Davis said, urging lawmakers to "pass a budget and pass it quickly".

This will take us years to dig out from...this is a very sad day for the state of California California state controller Steve Westley

The cut in California's credit rating - from A to triple B - twists the screw on its economic woes as it is likely to make it harder for the state to borrow money to cover the cost of services and salaries to tide it over its budget crisis.

California has become less affluent since the collapse of the dotcom boom in the late 1990s, though its economy remains roughly the same size as the UK's.

Mr Davis has drawn strong criticism for California's economic problems.

California has a $38bn (£22.8bn) budget deficit, equal to one-third of total state spending. Lawmakers are deadlocked over how to solve it.

"This will take us years to dig out from...this is a very sad day for the state of California," the Wall Street Journal quoted California state controller Steve Westly as saying.

It is only the second time in 47 years that S&P has rated a US state's debt so low, the Journal said. Massachusetts also got a triple B ranking in the early 1990s.

Election chaos

So far Democrats are standing firm behind Mr Davis, who is urging voters to reject the recall ballot.

However, with only one in four Californians approving of his performance, others - including former Congressman Leon Panetta - may be tempted to enter the race to succeed him.

Under California law, the ballot for a successor should the electorate recall Mr Davis will take place at the same time.

Already, the Republicans are hoping that film star Arnold Schwarzenegger will put his name forward as a candidate for governor.

The recall ballot was financed by Republican Congressman Dan Issa, who will certainly be in the running himself - but may be too conservative for the taste of many Californians.