newjerseynewsroom.com

Cites underfunded public employee pension system as the most significant risk to state's long-term credit quality

BY TOM HESTER SR.

NEWJERSEYNEWSROOM.COM

Standard & Poor's Wednesday reduced the rating on the New Jersey state government's long-term and underlying ratings on its general obligation debt from AA to AA- and Republican Gov. Chris Christie and Democratic leaders in the Legislature are blaming each other.

As part of its reasons for lowering the rating, S&P stated Christie and the Democratic-controlled Legislature need to get the state pension system's problems under control.

S&P also criticized the "long-term track record" of the state's fiscal managers.

S&P said that borrowing by past administrations has left the state government with a debt burden that is "among the highest in the nation." Per capita debt "is high," S&P stated, and amounts to $3,946 for every state resident, or nearly 8 percent of personal income and more than 7 percent of the state's total output of goods and services.

"The Legislature must take a sober look at this report and its message, which could hardly be clearer," Michael Drewniak, Christie's press secretary said. "Governor Christie's pension and benefit reforms are necessary to manage the state's pension liability and ensure long term stability. Any further delay by the legislature is irresponsible and reckless and jeopardizes New Jersey's fiscal health. The legislature must stop playing to the special interests, end the partisan politics and finally act on the promises they made last fall to pass comprehensive pension and benefit reform."

State Treasurer Andrew Sidamon-Eristoff insisted the downgrade is not an unexpected punch in the nose to the Christie administration.

"While New Jersey's bonds remain sound and respected investments, this downgrade highlights the real danger of failing to act swiftly on critical pension, health benefit and fiscal reforms," Sidamon-Eristoff said. "The financial markets can send no clearer signal that the (Democratic-controlled) Legislature needs to follow the governor's lead and act on the pension and benefit reforms he proposed last September - legislation that is critical to reviving the economy and restoring the state's fiscal integrity."

"... The report was very positive and supportive of the Christie administration's efforts to close last year's deficit, institute fiscal discipline and reform, control spending and reduce debt," Sidamon-Eristoff said. "The stable outlook reflects Standard & Poor's view that New Jersey will continue to manage its structural budget imbalances proactively. Through the recession, New Jersey, like every other state, has experienced revenue shortfalls, but the state took steps in fiscal 2010 to balance operations. The state closed fiscal 2010 with a $794 million general fund balance, about $300 million higher than 2009 levels."

Sidamon-Eristoff noted S&P stated the state government "has a recent history of making some difficult and unpopular decisions to restore balance."

"Governor Chris Christie has recently announced various reform initiatives that if approved could help begin to manage the state's pension liability," S&P stated. "The state estimates that if enacted in its entirety, these pension reforms would enable it to achieve a 91 percent funding ratio by 2041."

Sidamon-Eristoff said a funding ratio of more than 80 percent is considered more than sufficient to guarantee the security of a major pension fund.

"This shows why New Jersey has no choice but to create the kind of entrepreneurial economy that will generate the jobs and wealth needed to restore prosperity and reduce our dependence on debt," the Treasurer said. "An expanding economy would not only generate more revenue and ease the debt burden, but reduce the demand for unemployment assistance, Medicaid and other costly forms of state aid."

Assembly Budget Chairman Lou Greenwald (D-Camden) called the downgrade unfortunate for New Jersey, but, citing what he sees as Christie's irresponsible budget policies, added, the action did not surprise him.

"First we had all those property tax increases," Greenwald said. "Now we have Wall Street credit agencies lowering our bond ratings. "Governor Christie inflicted severe damage last year when he skipped the state's pension payment. It was reckless and made the problem much worse. It was so short-sighted, in fact, that it wiped out all the benefits from the bipartisan pension reforms ushered into law early last year.

"Now, the governor is pushing forward with a plan to borrow several billion more dollars without voter approval, so sadly the Christie damage ain't over yet," Greenwald said." More debt is on its way. It's time the governor took responsibility for his own actions and stopped trying to blame others. The buck certainly doesn't stop at Governor Christie's desk, even as he hikes property taxes throughout the state and makes our budget situation even more dire."

Senate Republican Leader Tom Kean (R-Essex), in turn, blamed the Democrats who control the Legislature.

"Standard and Poor's sent a clear message to Legislative leadership today- get serious about reform," Kean said. "Pension reform, employee benefits reform, and other measures integral to fixing our state's finances were put on the table last year by Governor Christie, but were left untouched by Trenton Democrats. This is an ambitious agenda, but one necessitated due to eight years of spending, borrowing, and dishonest budgeting by the very same legislators dragging their feet on reform today. The taxpayers are once again the victims, as more of their tax dollars will now be spent on interest and debt service instead of improving their communities."

Assembly Majority Leader Joe Cryan (D-Union) fired back at the Republican criticism, saying, "The Assembly is not about to be lectured by a governor whose budget policies have led to massive property tax hikes and a ballooning pension deficit. It's time for this governor to be held accountable for his actions and stop blaming everyone else"

Sen. Anthony Bucco (R-Morris), the Senate Republican budget officer, blamed what he sees as bad Democratic spending policies in past years for the downgrade.

"For more than a decade New Jersey irresponsibly borrowed, taxed and spent, often without voter approval, until the state is near the edge fiscal collapse," Bucco said. " Standard & Poor's downgrade is further proof that the tough decisions being made by Governor Christie are the only way to return New Jersey to fiscal health.

"The state needs hard-nosed responsible budgeting, including pension and health benefits reform brings our obligations in line with the taxpayers' ability to pay," Bucco said. "We must continue to tighten our belt and make sacrifices. During the upcoming budget negotiations every possible cent of discretionary spending must be deleted from the budget."