NJ Debt Climbs 3.1% to $38B as Growth Slows

New Jersey’s debt increased 3.1 percent, the slowest growth in four years, as Governor Chris Christie’s administration reduced the pace of borrowing.

Bonded obligations climbed to $38.1 billion in the year ended June 30, from $36.9 billion in fiscal 2010, according to a report from the state Treasury Department today. Total obligations, which include pension and post-employment benefits, rose 12 percent to $65 billion.

Christie, a Republican who took office last year, has said he wants to borrow less and use more cash to fund expenditures, including transportation. New Jersey debt had more than doubled over a decade, from $14.5 billion in 2001.

“The governor has greatly slowed the pace of bonded indebtedness,” Andy Pratt, a spokesman for Treasurer Andrew Sidamon-Eristoff, said in a telephone interview. “These problems started before the governor took office and took decades to create, and they’re going to take some years to solve. He has put us on a path to do that.”

New Jersey had the third-highest total net-supported debt among U.S. states after California and New York, according to the 2011 State Debt Medians report from Moody’s Investors Service. Debt as a percentage of 2010 personal income was the fourth-highest, at 7.9 percent, according to the report.

Bond Downgrade

The state’s bond rating was downgraded one step to Aa3, the fourth-highest level, in April by Moody’s, which cited a “weakened financial position” and an economic recovery lagging behind the nation. Fitch Ratings and Standard & Poor’s also cut New Jersey’s debt ranking this year.

The ratings firms also cited the state’s growing pension and health-care obligations as reasons for the downgrades.

The state owes $10.8 billion for missing payments into its pension funds, according to the treasury’s annual debt report. That obligation climbed 29 percent from $8.4 billion a year earlier. The state hasn’t made pension contributions for most of the past decade, including a $3 billion payment Christie skipped last year.

A new law requires the state to make at least one-seventh of its pension contribution this fiscal year, and then increase the payment gradually each year until it is making the full amount. Christie, 49, has said he intends to make a payment of about $484 million before June 30, the minimum required.

Health Care

New Jersey’s obligation for post-employment health-care benefits also increased, to $13.5 billion in fiscal 2011 from $10 billion a year earlier, the debt report showed.

Christie signed a law June 28 that raised the retirement age as well as the amount that government workers pay for health benefits and pensions. The law also froze cost-of-living increases until pension pools reach targeted funding ratios.

The report offers the first chance to quantify the health of the state’s pension funds following the changes. The law decreased the gap between fund assets and anticipated payouts, or unfunded liability, by $17.6 billion, to $36.3 billion as of June 30, 2010, Pratt said.

The state revised the earlier figures using the new pension data and more recent numbers aren’t available, Pratt said.

Retirements among state and local workers surged with the new pension and health-care regulations. A total of 11,385 people enrolled in the Public Employee Retirement System filed to leave the workforce from January to June, up from 10,700 in all of the preceding year, according to state Treasury Department records.

Debt Service

The annual debt report excludes short-term financing and bonds issued by state authorities, including the Turnpike Authority, that are secured by their own revenue. It also doesn’t include debt issued by local governments and bi-state agencies, said James Petrino, the state’s public finance director, who prepared the report and presented it today to the state Commission on Capital Budgeting and Planning.

New Jersey’s debt as of June 30 includes $2.6 billion of general-obligation bonds, $19.8 billion of revenue bonds and $18.7 billion of installment obligations, which includes debt issued by state authorities and payable by the state.

Total debt service is $2.8 billion this fiscal year, up from $2.5 billion in 2011, and will grow to more than $3 billion annually for at least the next five years, the report said.

To contact the reporters on this story: Elise Young in Trenton at eyoung30@bloomberg.net; Terrence Dopp in Trenton at tdopp@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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