California received an outlook boost to positive from S&P Global Ratings as the state prepares to sell more than $2 billion of general obligation bonds.

The deal will land the week of a Sept. 14 recall election targeting Gov. Gavin Newsom. But California’s surplus and budgetary changes that occurred after the 2008 economic crash will protect the state from any changes that could come if Newsom fails to retain his job in the recall, according to S&P analysts.

Voters have two choices on the ballot; the first is whether to remove Newsom, a Democrat; and the second is to pick a replacement from among dozens of candidates. The main candidates are Republicans.

“We do not view the pending governor’s recall election on Sept. 14, as a significant risk to timely budget enactment as the current party controlling the legislature holds a veto-proof majority,” S&P Global Ratings credit analyst David Hitchcock said in an interview.

S&P affirmed its AA-minus ratings on its $70.8 billion in outstanding general obligation bonds, excluding higher-rated double-barreled veteran’s mortgage bonds, and $8.3 billion state appropriation-supported bonds.

“The outlook change reflects California’s projection of near long-term structural balance and high reserves, even assuming that currently high capital gains tax and federal aid revert to historically lower levels in later years,” Hitchcock said.

S&P remains a notch below Fitch Ratings and Moody’s Investors Service, which rate California AA and Aa2, respectively. Both assign stable outlooks.

Morgan Stanley and Wells Fargo are joint senior managers for the 29 firms that are scheduled to price the $2.1 billion new money and refunding deal on Sept. 14, after a retail order period the day before.

S&P analysts have “seen various other states in the past enact budgets and laws over the governor’s veto, without major disruptions to credit quality,” Hitchcock said. “That said, we will be monitoring for possible credit risks if a recall is successful.”

In 2003 California voters recalled Gov. Gray Davis in an election that made Arnold Schwarzenegger governor.

That shift “did not pose, in and of itself, a significant additional credit risk in that budgets were chronically late regardless of the governor due to the supermajority budget vote requirement at that time and the majority party not having a two-thirds supermajority, Hitchcock said.

Voters in 2010 approved a state constitutional amendment that allows state lawmakers to pass a budget with a simple majority. That and other changes, including former Gov. Jerry Brown’s fiscal conservatism and commitment to “paying down the wall of debt,” changed the dynamic in Sacramento resulting in the state’s ratings climbing from triple-B territory into today’s double-A levels.

All the rating agencies say the state’s revenue volatility, because of the progressive income tax structure that depends on high net worth individuals, and therefore the stock market, keeps it from having a triple-A rating.

The state’s housing crisis and slow population growth are also considered challenges by the rating agencies.

S&P analysts also noted the state government’s sluggish production of its financial reports.

“We believe California’s unusually delayed annual comprehensive financial report for the fiscal year ended June 30, 2020, which the state does not expect to release until late October 2021, represents a weakness in financial reporting,” Hitchcock said.