May 1 (Bloomberg) -- New Jersey’s credit rating was lowered one step to A+ by Fitch Ratings, which cited an $807 million revenue shortfall and Governor Chris Christie’s likely use of one-time measures to plug the gap.
The company cut the state’s general-obligation debt to the fifth-highest investment grade, saying revenue forecasts were “overly optimistic.” Fitch also expressed concern over “both the scale and belatedness” of the shortfall, with two months left in the fiscal year. Fitch maintained a negative outlook on the state’s credit, meaning it may face a further downgrade.
The move affects $2.4 billion in general-obligation bonds and Fitch also cut its grades on $32 billion in other debt. It marked the second time the ratings company has lowered New Jersey since Christie took office in January 2010. Standard & Poor’s has cut New Jersey’s rating twice and Moody’s Investors Service has also lowered its ranking.
“Above-average state debt obligations are compounded by significant and growing funding needs for the state’s unfunded retirement liabilities,” Fitch said in a statement announcing the decision.
Christie, a 51-year-old Republican weighing a White House run in 2016, has said “nothing is off the table” as his administration attempts to close the gap. Most of the shortfall is because of a $700 million drop in income-tax collections.
Christie’s $34.4 billion budget plan for the fiscal year beginning July 1 includes a record $2.5 billion pension payment that crowds out other spending.
Joseph Perone, a spokesman for state Treasurer Andrew Sidamon-Eristoff, said many states have seen similar problems this year after high-income earners speeded up 2013 payments to avoid changes in federal tax laws. New Jersey receives about 40 percent of its revenue from the top 1 percent of filers.
“This is not a New Jersey-specific problem,” he said in an e-mail. “Many other states that are heavily dependent on income taxes, including Connecticut, Pennsylvania, Kansas and Michigan, face shortfalls of similar or even greater magnitude that defied predictive analysis.”
New Jersey under Christie has seen tax collections lag behind administrative projections for three consecutive years as the state trails neighbors in recovering from the recession.
“When you have a structurally imbalanced budget and you miss revenue projections year in and year out -- you’re going to lose all credibility,” said Senator Paul Sarlo, a Democrat from Wood-Ridge who chairs the budget panel. “Every credit ratings agency is going to continue with the downgrades.”
At town hall meetings in the past several weeks, Christie has warned that New Jersey is bound for the same fate as Detroit. The state is not empowered to declare bankruptcy, though, and he has told audiences that if the Democratic-led legislature doesn’t enact pension changes and other cost-cutting now, future governors will have to inflict even greater pain.
New Jersey’s $807 million budget shortfall is a “credit negative development” with Christie likely to choose one-time cuts, a sign of fiscal weakness, Moody’s said this week in a report.
The company, which ranks New Jersey debt Aa3, three steps below the top, and has a negative outlook on the state, stopped short of a downgrade. S&P on April 9 cut New Jersey one step, to A+, a level that leaves it with California and Illinois as the lowest among U.S. states.
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