New Jersey faces a deficit of almost $2.7 billion over the next 13 months, the legislature’s budget and finance officer told lawmakers a day after Governor Chris Christie announced pension cuts to balance two budgets.
With six weeks left in the fiscal year, the state is $1.07 billion short, David Rosen of the Legislative Services office told the Assembly Budget Committee in Trenton today. Starting July 1, New Jersey will have a $1.59 billion shortfall.
“Our revenue growth is weaker in New Jersey than what one would expect in a growth period,” Rosen said. “Clearly, New Jersey’s growth lags behind neighboring states.”
Christie, a second-term Republican, said he’ll reverse course on pledged pension payments this year and next after revenue fell short of his goals by as much as $875 million.
This year’s $696 million payment will be less than half the planned $1.58 billion. For fiscal 2015, he’ll give $681 million, less than a third of the record $2.25 billion he had proposed.
New Jersey faces a cash shortage next month, with $2.6 billion due on tax- and revenue-anticipation notes, or TRANs, and just $2.2 billion on hand. The 51-year-old, a potential 2016 presidential candidate, has refused to raise taxes to remedy three straight years of missed revenue.
“This is a political decision -- it’s all about 2016,” Patrick Murray, director of the Monmouth University Polling Institute in West Long Branch, said by telephone. “Now that he’s not the odds-on favorite of the moderate wing of the Republican Party, he’s got to win conservative voters. He’s got to do everything in his power not to raise taxes.”
Christie’s prospects have been clouded after prosecutors and lawmakers began investigating the administration’s role in deliberate traffic jams at the George Washington Bridge in September. Christie has denied any hand in closing access lanes in Fort Lee, whose mayor didn’t endorse him for re-election.
Christie, who has made fiscal rectitude a pillar of his message, signed an executive order giving himself permission to alter this year’s payment, and will ask lawmakers to approve next year’s reduced contribution. Since his first run for governor in 2009, Christie has cited similar lapsed contributions by predecessors as gimmicks that contributed to the state’s poor fiscal health.
“I’m doing what I need to do to fulfill my constitutional obligation to balance a budget,” he told reporters yesterday in Trenton. “I’m going to pledge to make the payments that we need to make to not dig the hole any deeper.”
Christie signed a law that bound him to make extra pension payments through 2018 after a decade of expanded benefits and missed payments left the system underfunded by $52 billion. Yesterday, he said he would cover only pension costs “accrued on our watch by active employees.”
The extra yield that bond buyers demand to purchase New Jersey debt rather than top-rated munis has decreased this year. Municipal issuance is down 28 percent in 2014 compared with the same period in 2013, data compiled by Bloomberg show. The yield on New Jersey debt maturing in 10 years was 0.21 percentage point above benchmark munis yesterday, down from 0.44 percentage point in January.
That trend may reverse and the yield gap may widen if Christie cuts the state’s allocations to the pension system, said Daniel Solender, who helps manage $15.5 billion of munis at Jersey City, New Jersey-based Lord Abbett & Co.
“For someone who invests in the state, it’s really disappointing,” Solender said. “There’s got to be better things than going after the one item that keeps getting the attention of rating agencies and the investors.”
“This issue is just being pushed further into the future,” he said. “It would seem to be something that should lead to wider spreads for the bonds.”
Moody’s Investors Service cut New Jersey’s credit one step, to A1 or fifth-highest, on May 13. It was the sixth rating cut since Christie took office in 2010. The three major rating companies all cited recurring deficits.
Christie said he isn’t concerned that more downgrades are possible. Moody’s and Fitch Ratings both have negative outlooks on New Jersey debt, signaling potential for lower ratings.
Christie said he’s reducing his revenue projections for this year and next by a total of $2.75 billion.
New Jersey has $2.6 billion of TRANs maturing June 26, with a required set-aside of 75 percent June 12, according to Moody’s. As of May 6, the state had $2.2 billion in cash.
“The current revenue shortfall will stress the state’s operational cash flow,” Baye Larsen, a Moody’s senior analyst, wrote yesterday in a report.
The state “will repay its note on schedule,” Joseph Perone, a spokesman for Andrew Sidamon-Eristoff, said yesterday by e-mail. He declined to comment on the possibility of a direct loan or bank credit line in the event of a cash shortage.
New Jersey’s $875 million revenue shortfall for the current year was caused in large part by lower income-tax collections after federal rule changes, the governor said.
“Everybody got this wrong,” said Christie, referring to other states that also had misjudged the changes’ impact on revenue. “We did see it coming. We just didn’t see it coming to this extent.”
The governor said in February that public-employee unions must agree to changes in retirement and health plans because his 2011 overhaul didn’t go far enough to contain costs.
That measure required the state to make one-seventh of its pension contribution in fiscal 2012 and then raise the payment each year until reaching the full annual amount in 2018.
“Christie said he fixed the pension system,” said Hetty Rosenstein, state director of the Communications Workers of America, the largest state employee union. “Cutting taxes for the super-wealthy while stealing money from pensions hasn’t worked yet. And it won’t work this time.”