Ok, S&P actually downgraded California to A-. And since developing countries have some of the best balance sheets around, maybe the title is especially unfair to those countries.

The reason?

The budget situation remains horrible.

Dow Jones:

Due to uncertain assumptions of major portions of the budget, S&P said the state's credit is more susceptible to adverse economic developments.

As a result, it lowered its ratings on the state's $63.9 billion of general obligation debt by one notch to A-, which is four notches into investment grade. That is the lowest such rating for any state in the U.S. California also has a negative outlook, meaning future downgrades aren't out of the question.

And while the budget proposal includes efforts to make some structural improvement to the state's projected fiscal imbalance, S&P said it does so by assuming what it considers to be "significant increases in federal reimbursements and funding and reduced federal spending mandates--provisions over which the state lacks singular or direct authority." It also requires voter approval of two ballot measures to allow the redirection of $1 billion in funds presently earmarked pursuant to two prior election results.

Read the whole story -- >

Bonus: Now see the real state of collapsing state revenues -- >