‘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.”