New Jersey had its credit rating cut one step by Standard & Poor’s, handing Chris Christie his eighth downgrade, the most ever for a Garden State governor.
The reduction to A, the sixth-highest level, with a stable outlook follows a Sept. 5 downgrade by Fitch Ratings. It gives New Jersey the same general-obligation grade as California, which is on track for an upgrade as revenue exceeds Democratic Governor Jerry Brown’s estimates. Only Illinois has lower ratings than New Jersey among U.S. states.
“New Jersey continues to struggle with structural imbalance,” S&P analyst John Sugden in New York said in a statement today. “The governor’s decision to delay pension funding, while providing the necessary tools for cash management and budget control, has significant negative implications for the state’s liability profile.”
Christie, a 52-year-old Republican in his second term, broke his promise this year to make $2.5 billion in extra pension payments in fiscal 2014 and 2015 to help trim unfunded obligations. He has called for more changes to the plan as costs for employee benefits crowd out other state spending.
Revenue shortfalls led all three credit-ratings companies to downgrade New Jersey earlier this year, leaving Christie with six downgrades as of May, tying him with Democrat James McGreevey for the most credit reductions for a New Jersey governor. Last week, Fitch cited the lack of progress in fixing budget gaps when it cut the state one step to A.
S&P’s rating move also applied to appropriation-backed debt, which was lowered one step to A-. Yields on some tax-exempt bonds issued by the state’s economic development authority rose today. Securities maturing in September 2023 changed hands with yields as high as 2.93 percent today, the highest since June, data compiled by Bloomberg show.
“New Jersey bonds are still strong investment-grade securities and highly coveted by municipal bond investors,” Christopher Santarelli, a spokesman for the state treasury, said in an e-mail. “Like Fitch, Standard & Poor’s rating action calls on the state’s elected leaders to take on the state’s long-term pension and health liabilities that will continue to place additional pressure on future budgets.”
The governor, who took office in 2010, signed a law that year compelling the state to make seven extra annual pension payments, in addition to raising the minimum retirement age for employees and forcing them to pay more for their retirement and health benefits.
New Jersey’s pension deficit, which reached $53.9 billion in 2010 after a decade of skipped payments and expanded benefits, fell to $36.3 billion with Christie’s changes. It then grew to $47.2 billion in 2012 as he made only partial contributions.
For fiscal 2014, which ended June 30, Christie contributed $696 million, less than half the planned $1.6 billion. Superior Court Judge Mary C. Jacobson, ruling in Trenton on June 25 in a lawsuit filed by state worker unions, said Christie was within his power to reduce the payment because he faced a fiscal emergency.
The judge declined to rule on Christie’s fiscal 2015 plan to trim the contribution to $681 million from $2.25 billion.
A potential 2016 candidate for president, Christie was traveling today to Illinois as chairman of the Republican Governors Association to attend events for gubernatorial hopeful Bruce Rauner. Last week he made a three-day trip to Mexico on what his administration called a trade mission.
“We’re trying to address the budget situation, but the fact is that it is not something that should leave them lying awake at night worrying,” Christie said Sept. 8 in Atlantic City when asked whether people should be concerned about the downgrades. “This is, again, I think the ratings agencies going back and being significantly overaggressive because they were such bums back in ’08 and ’09 and they left everybody hanging out to dry.”
Democrats who control the state’s legislature have said they won’t consider any more pension-benefit cuts until Christie makes full contributions. A commission created by the governor to recommend changes is expected to finish its work next month.
“In the absence of consensus between the legislative and executive branches, any type of pension solution is likely to be delayed and result in mounting financial pressures for the state in the long term,” Sugden said.