New Jersey Revenue Miss ‘Credit Negative,’ Moody’s Says
New Jersey missing its revenue target in April is a “credit negative” and may force the state to dip into its reserves or use one-time fixes to bridge the gap, Moody’s Investors Service said.
The second-wealthiest U.S. state’s economic recovery will lag behind the nation, and its unemployment rate will exceed the country’s through 2014, Moody’s said in a report today. The company rates New Jersey’s debt Aa3, its fourth-highest grade.
Governor Chris Christie’s budget for fiscal 2013, which begins July 1, counts on a 7.3 percent revenue gain, the most since before the last recession began in December 2007. Standard & Poor’s said in February that the 49-year-old Republican’s spending plan is “structurally unbalanced” because it is built on “optimistic” revenue assumptions.
“We expect revenue growth to remain in line with recent trends through fiscal 2013, challenging the state’s ability to structurally balance its growing fixed costs,” wrote Baye Larsen, a senior analyst with Moody’s.
New Jersey’s April revenue miss left collections $230 million behind forecasts for the first 10 months of this fiscal year. Kevin Roberts, a spokesman for Christie, said that year- to-date collections are $500 million above the same period of 2011 and the state still has two months of revenue.
‘Complete Revenue Picture’
Treasurer Andrew Sidamon-Eristoff, who is scheduled to appear before the Assembly Budget Committee on May 23, will “provide a full and complete revenue picture for New Jersey as we move through the end of the fiscal year -- not a shotgun analysis that relies on a single figure that does not accurately represent the health of the state’s economy in full,” Roberts said in an e-mail.
Northeastern U.S. states, including New Jersey, Connecticut, New York and Pennsylvania, reported revenue falling as much as 2 percent below targets this fiscal year through March. In April, New York and Pennsylvania topped goals by 7.6 percent and 3.6 percent, respectively, Moody’s said.
“New Jersey’s disappointing April results are partially related to the state’s more optimistic projections compared to its neighbors, as well as relatively slow economic performance in late 2011,” Moody’s said.
New Jersey’s tax revenue increased 2.8 percent in fiscal 2011 and has climbed 2.7 percent year-to-date, Moody’s said. Total revenue was 5.3 percent below Christie’s targets for April, and 1.2 percent short for the year through April, Sidamon-Eristoff said on May 15.
Christie has been traveling the state to tout a “Jersey Comeback,” an economic-recovery plan fueled by a 10 percent across-the-board income-tax cut. He has said the state can afford higher spending and lower levies now that its “fiscal house is in order.”
The Christie administration had projected April revenue would rise to $3.44 billion, from $3.32 billion a year earlier. Instead, revenue last month fell 2 percent to $3.26 billion. April is typically the largest month for income-tax collections because it includes the filing deadline.
Christie has projected ending this fiscal year with $588 million in reserves. A $230 million decrease would “tighten the state’s liquidity” and leave a $358 million ending balance, lower than in any of the past five years, Moody’s said.
While the April revenue miss is a setback, it shouldn’t harm the state’s long-term credit outlook, said Daniel Solender, who manages $16 billion of municipals at Lord Abbett & Co. in Jersey City. The state will benefit from the pension overhaul Christie enacted last year, which he has said would save $120 billion by 2041, Solender said.
“Things are improving, just not at the pace projected in the budget,” Solender said in a telephone interview. “We have to see how they handle this in the next month or so; how they put together their budget and what changes are made.”
Rising pension costs and a slow recovery led Moody’s, S&P and Fitch Ratings to lower the state’s credit grade last year. New Jersey’s general-obligation debt is rated AA- by S&P and Fitch, comparable to the Moody’s level.
Sidamon-Eristoff said in April that revenue for the month would be “key in helping the administration maintain this positive momentum.” Andrew Pratt and Bill Quinn, spokesmen for the treasurer, didn’t return e-mails seeking comment on the Moody’s write-up.
The report will be a key part of the Assembly budget panel’s questioning of the treasurer, said Vincent Prieto, a Secaucus Democrat who is chairman of the committee.
“You have to be realistic,” Prieto said today during an interview at the Statehouse. “This budget affects the budget for next year -- how is he addressing that?”
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