Fitch Ratings lowered the credit rating on New Jersey’s general-obligation bonds by one step to AA-, the fourth-highest grade, on what it called “mounting budgetary pressure” from pension and employee-benefit deficits.
A bill putting more of the pension and health-care burden on employees, signed by Governor Chris Christie in June, won’t prevent the need for increased state contributions, Fitch said yesterday in a report. Other negatives were a weak economic recovery, persistent deficits and high debt, the company said.
The downgrade was in line with a cut by Moody’s Investors Service by one level, to Aa3, in April. Standard & Poor’s cut its grade to AA- in February. Both are also fourth-highest.
“Let me be very clear to anybody out there who either holds New Jersey debt or is considering buying future debt: New Jersey pays its bills; always has and always will,” Christie told reporters today in Elizabeth. “Fitch is a little late to the party.”
The outlook was revised to stable from negative by Fitch analysts led by Ken Weinstein.
“Meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long- term challenges, such as property-tax relief, school funding, and infrastructure needs,” Weinstein wrote.
Daniel Solender, who oversees about $14 billion as head of municipal bonds at Lord Abbett & Co. in Jersey City, New Jersey, said the Fitch downgrade wasn’t surprising, given the earlier decisions by S&P and Moody’s.
“This issue is not going to cause a cash-flow problem today,” Solender said, referring to the higher pension payments. “At some point, they’re going to have to start paying into it.”
Christie, a 48-year-old Republican, signed a $29.7 billion budget in June in which he vetoed about $1 billion in spending added by Democrats who control both the state Senate and the Assembly. The spending included a pension payment of about $480 million, below the $3 billion recommended by actuaries. The state hasn’t made full payments into its pension system for most of the past decade.
“New Jersey is struggling, like nearly every other state, to rebound from the worst economic downturn since the Great Depression,” William Quinn, a spokesman for Treasurer Andrew Sidamon-Eristoff, said in a statement. “It’s also hampered by past administrations’ mismanagement of state finances, which left New Jersey with a weaker economy than its neighbors’, huge debts and billions of dollars of underfunding in the pension plans and for future retiree medical benefits.”
New Jersey’s finances have bottomed and are beginning to rebound, helped by private-sector job gains and a shrinking government, Christie said. The state’s unemployment rate was unchanged in July at 9.5 percent, up from 9.4 percent a year earlier. Businesses added 3,900 jobs while public employment declined by 2,100, the state labor department said today.
Christie said the credit-rating downgrades may increase borrowing costs in the short term, though he doesn’t expect it to harm the state’s ability to borrow.
Under a measure signed by Christie, the state is required to phase in full pension funding over seven years. That will strain the state’s finances as it looks to fund schools and property-tax relief programs, Weinstein said in an interview.
“The state has not been fully funding that payment and won’t for several years,” he said. “The growing pension payment will challenge their ability to do that.”
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