- Credit-rating company cites presure from employee benefits
- S&P says situation may worsen over the next several years
New Jersey’s credit-rating outlook was revised to negative from stable by Standard & Poor’s, which cited the “significant long-term pressures” the state is under from employee benefit liabilities and the risk the situation will worsen.
At the same time, S&P affirmed its A rating on New Jersey’s general-obligation bonds, its A- rating on the state’s appropriation-backed debt, and its BBB rating on the state’s moral obligation debt. The state plans to sell $142 million in general-obligation bonds and $97 million in appropriation debt on Wednesday to refinance existing securities.
"The outlook revision reflects our view of the significant long-term pressures the state is under related to its post-employment benefits and the potential for New Jersey’s situation to worsen over the next year or two based on current litigation and proposed legislation," John Sugden, an S&P analyst, said in a statement. "It also reflects weakened pension funded levels due to pension underfunding and lower-than-assumed rates of return," he added.
New Jersey’s mounting tab from its employee retirement plans are squeezing its finances because years of failing to set aside enough to cover promised benefits have caused the annually required contributions to soar.
The state’s strains don’t end there. Republican Governor Chris Christie and the Democratic-controlled legislature have yet to replenish a fund that finances transportation projects and is set to run out of money in July. A lackluster recovery from the recession has stymied the state: It wasn’t until late last year that private-sector payrolls climbed back above their 2008 peak, a benchmark the U.S. reached in early 2014.
“This outlook change should serve as a wake-up call to Democrat legislators in Trenton,” Brian Murray, a spokesman for Christie, wrote in an e-mail. “If they do not join the governor’s efforts to make public employee entitlements affordable for taxpayers, and if they continue to fight to enshrine these costs in the state constitution, it will be devastating to the budget and to the economy.”