Moody's Investors Service downgrades N.J. state government's bond rating | Economy | -- Your State. Your News.

Jul 04th
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Moody's Investors Service downgrades N.J. state government's bond rating

moodyslogo_opt‘Weakened financial position’ sparks second downgrade in three months

The bond rating for New Jersey’s state government has been downgraded one step to Aa3, the fourth-highest level, by Moody’s Investors Service, which cited a “weakened financial position” and an economic recovery lagging behind the nation.

Only Illinois and California have lower ratings from Moody’s, according to data compiled by Bloomberg News Service. Moody’s cited New Jersey “rapidly rising fixed costs, relatively slow economic recovery, and a lack of specified plans to rebuild fund balances.” Rising health-care and pension costs were also cited as a concern.

Gov. Chris Christie skipped a $3 billion payment into the state retirement system in the 2010-11 fiscal year and urged the Democratic-controlled Legislature to pass his proposed pension and benefit changes. Fixed costs such as debt service, pension contributions and benefit payments may reach 30 percent of revenue within eight years, from 13 percent in fiscal 2010, Moody’s reported, making financial management more difficult.

“They key driver here is that the state is coming into a challenging situation with an already-weakened fund balance and liquidity and with a structurally imbalanced budget,” Baye Larsen, a Moody’s analyst in New York, told Bloomberg. “Over the next several years there are going to be rising pressures.”

Larsen predicted moderate tax-revenue growth in the state, since employment continued to decline last month, while New Jersey’s economic recovery is projected to lag the nation.

“What concerns us more is what the state is going to do in order to manage the unfunded liabilities and budget pressures going forward,” Larsen told Bloomberg.

Bloomberg noted the downgrade followed by less than three months a similar action by Standard & Poor’s, which lowered the state’s general- obligation bond rating to AA-, also the fourth-highest level, citing the growing pension and benefit obligations. Fitch Ratings Wednesday affirmed its AA grade on the debt, while revising its outlook to negative from stable.

“The negatives cited by Moody’s are legacy issues which this governor is working daily to fix to ensure the state is put on a sustainable fiscal path,” Michael Drewniak, Christie’s press secretary, told Bloomberg.

The Moody’s downgrade affects about $34 billion in debt, Larsen told Bloomberg, including the state’s general-obligation bonds and $32.9 billion in appropriation-backed securities. In December, New Jersey reported $2.6 billion in general-obligation debt outstanding.

The pension fund that covers current and retired government workers in New Jersey has a funding deficit of $53.9 billion, based on assets and anticipated payouts, the state reported in December, Bloomberg reported. The unfunded gap for providing medical care to retired public employees was projected to be $66.8 billion.

Drewniak told Bloomberg, that the Moody’s downgrade “clearly underscores the need for bipartisan participation in enacting critical reforms, in particular pension and health benefits, civil-service reform and ending the abusive practice of paying public employees for accumulated sick leave.”

Assembly Majority Leader Joseph Cryan (D-Union) said he blames the lower rating on Christie.

“Governor Christie’s irresponsible policies are truly beginning to hit home,” Cryan said. “That’s unfortunate for taxpayers already reeling under Governor Christie’s property tax hikes.

“It’s no laughing matter when one Wall Street agency takes a sour look at the governor’s budget,” Cryan said. “It’s even worse when two credit rating agencies do so. The governor’s fiscal failures are getting noticed by Wall Street and that is troublesome.

“Governor Christie must learn that failing to fund pension contributions and vetoing job creation and economic development bills have consequences,” Cryan concluded.

“New Jersey has 6,000 less jobs now than when Governor Christie took office. That’s a terrible record. If he doesn’t change his mindset and decide to devote more time to fixing problems rather than pointing fingers and looking for people to yell at on YouTube, then New Jersey’s economic recovery will sadly continue to lag the nation.”

As positives in the report, Drewniak cited to Bloomberg sections noting Christie’s effort to reduce the use of one-time revenue in his proposed 2011-12 budget, his pension plan proposals and greater use of pay- as-you-go capital funding for transportation.

The spending plan for the year that begins July 1 would boost school funding by $250 million, would keep municipal aid stable and cut $199 million of business taxes.

Christie also has proposed making a $506 million payment into the pension system, if Democrats pass his proposal to raise workers’ costs. The governor also wants to roll back a 9 percent pension- benefits increase enacted in 2001, raise the minimum retirement age for public employees and freeze cost-of-living raises.



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