New Jersey’s credit rating was lowered one step to A1 by Moody’s Investors Service because of revenue shortfalls as Governor Chris Christie said he would release a plan to address the issue next week.
The downgrade to the fifth-highest level applies to $2.4 billion of general-obligation debt and $29.8 billion of appropriations-backed and general obligation-related debt, Moody’s said yesterday in a statement. The action matched downgrades by Standard & Poor’s and Fitch Ratings.
The sixth ratings cut since Christie took office in 2010 leaves the Republican tied with Democrat James McGreevey for the most credit reductions for a New Jersey governor. The three major rating companies have all cited recurring deficits as revenue fails to meet Christie’s projections.
“The downgrade to A1 reflects the weakened financial position resulting from recurring revenue shortfalls and ongoing reliance on non-recurring resources that have deferred structural imbalances into future years,” Moody’s analyst Baye Larsen said in the report. She said the state’s outlook was negative, meaning it may face a further downgrade.
Christie, who is considering a 2016 run for president, said today during a question-and-answer session at the Peter G. Peterson Foundation’s Fiscal Summit in Washington that he’ll explain next week his solution for closing a deficit in the current fiscal year. The governor said he wouldn’t increase taxes.
“I can’t tell you exactly how I am going to fix this until next week,” Christie said. The governor said he “will do what I have to do.”
The penalty investors demand to buy New Jersey debt has declined more than 50 percent since Jan. 2, according to data compiled by Bloomberg. New Jersey investors get about 20 basis points, or 0.20 percentage point, more than top-rated debt for 10-year securities. That’s down from 44 basis points on the first trading day of the year.
Christie, 51, took office pledging to end years of Democratic bungling of state finances and fix a pension system heading toward insolvency. His administration has overestimated revenue for three straight years, prompting one-time measures to close mid-year gaps. With less than two months left in the fiscal year, he is $807 million short of his projection.
The governor’s $34.4 billion budget plan for next fiscal year, the largest ever, includes a record $2.5 billion pension payment. According to his figures, more than 90 percent of new spending goes to pensions, health benefits and debt payments.
The governor said in February that the pension was underfunded by $52 billion after a decade of expanded benefits and missed payments. Democratic lawmakers and public-employee unions must accept changes in retirement and health plans because his 2011 overhaul didn’t go far enough, he said.
New Jersey Treasurer Andrew Sidamon-Eristoff said most of the revenue shortfall was in income-tax collections, which fell $700 million below targets. New Jersey gets about 40 percent of its income-tax collections from the top 1 percent of filers.
“Recent actions from the rating agencies make it clear that long-term issues must be addressed,” Joseph Perone, a spokesman for Sidamon-Eristoff, said in a statement, citing the rising costs of public-employee pension and health benefits, and debt service. “This should serve as a clear warning and call for the Legislature to join the governor in taking on the cost of these entitlements in a real way to secure our long-term fiscal health.”
Christie’s administration is being investigated for the intentional closing of traffic lanes leading to the George Washington Bridge in September. That backed up traffic in Fort Lee, whose Democratic mayor declined to endorse the governor’s re-election.
Christie said months of investigations have failed to show that he was aware of such a scheme and that the closings wouldn’t hurt his political future.
“What the people of New Jersey know about me is I tell them the truth,” he said in today. “This will be a footnote.”
Moody’s downgrade to A1, fifth-highest, equals Standard & Poor’s rating cut to A+ on April 9. Fitch Ratings lowered the state to a similar grade on May 1. Only California and Illinois have lower grades among U.S. states.
Moody’s and Fitch give the state a negative outlook, meaning more cuts are possible. Increased reliance on structurally unsound budget management actions, including optimistic revenue assumptions, could push the rating down further, Larsen said in the report.
Chief executives of other states have also received multiple downgrades during their terms. In Illinois, which has the worst-funded U.S. state pension system, Democratic Governor Pat Quinn has seen 13 cuts since taking office in 2009.
In the $3.7 trillion municipal-bond market, a falling credit grade has helped bolster New Jersey securities. With benchmark yields at 11-month lows, investors are favoring lower-rated bonds in 2014. Borrowings from New Jersey have earned about 5.8 percent this year, sixth-best of 27 states tracked by S&P Dow Jones Indices.