Negative Outlook on N.J. Debt May Be Campaign Plus for Democrats
New Jersey Democrats who cast doubt on Republican Governor Chris Christie’s economic comeback plans have been handed a weapon heading into next year’s elections.
Standard & Poor’s lowered the state’s credit outlook to negative from stable yesterday, citing budget imbalances, pension liabilities and debt burden. The general-obligation rating of AA-, fourth highest, may be cut “should state revenue projections turn out to be optimistic,” leading to more “short-term budgetary maneuvering,” the company said.
“This provides the Democrats with more ammunition to stall some of Chris Christie’s major proposals, particularly his tax cuts,” Patrick Murray, who teaches political science at Monmouth University in West Long Branch, said in an interview. “It gives the Democrats some cover to keep the governor from scoring political points as he heads into next year’s re- election battle.”
Christie, 50, whose rising star status in his party was underscored by his selection as keynote speaker for the Republican National Convention, hasn’t said whether he’ll run for a second term.
The credit revision will be a subject of today’s Assembly Budget Committee hearing, according to Vincent Prieto, a Democrat from Secaucus who is chairman of the panel.
Assemblyman Declan O’Scanlon, Republican budget officer in the lower house, said the hearing is meant as an opening shot for next year’s “crazy election season.”
“I would be willing to place a bet that tomorrow is purely about politics,” he said yesterday in an interview. “They’re going to try to rough the governor up.”
“Investors will find S&P’s arguments to be out of step and its basis for revising New Jersey’s outlook unconvincing, particularly in the face of the continued growth in New Jersey’s economy and state revenues,” Andy Pratt, a spokesman for state Treasurer Andrew Sidamon-Eristoff, said by e-mail.
The governor has traveled the state touting a “Jersey comeback,” an economic-recovery plan that includes a tax cut. While Democrats set aside $183 million in tax relief in the $31.7 billion budget for fiscal 2013, they won’t free it until they see whether revenue meets Christie’s targets.
A rating cut would be the second for New Jersey since Christie took office in January 2010. S&P lowered the state’s grade from AA, third-highest, in February 2011, citing growing pension and health-care obligations.
Earlier this year, S&P said Christie’s budget for the fiscal year that began July 1 was structurally unbalanced because it was built on optimistic economic projections.
A New Jersey general-obligation bond maturing in 2021 traded Sept. 10 with an average yield of 2.17 percent, 0.58 percentage point above an index of benchmark municipals with similar maturity, data compiled by Bloomberg show.
That yield difference has increased from Jan. 4, when the bonds traded with an average yield of 2.24 percentage points, 0.51 percentage point above the index.
Christie’s proposed fiscal 2013 budget counted on a 7.2 percent revenue gain compared with 2012, second only among U.S. states to a 7.7 percent jump projected by California Governor Jerry Brown, according to the New Jersey treasurer’s office.
“The rest of the nation is projecting 2 percent to 3 percent,” Senator Paul Sarlo, a Wood-Ridge Democrat who heads the Budget Committee, said by telephone. “All of these financial rating agencies are keeping a very close look on New Jersey.”
New Jersey’s economic base is experiencing a “somewhat muted recovery,” S&P credit analyst John Sugden said in the report. He criticized “a trend of structurally unbalanced budgets that include only partial funding of pension obligations and the reliance on one-time revenues and debt restructurings to offset underfunding of expenditures and revenue shortfalls.”
For fiscal 2014, the state has already identified about $2.2 billion in budget gaps, the rating company said.
“The fact that we’re one year out, and these alarm bells are sounding, I don’t think bodes well for the external evaluation of Governor Christie’s handling of the New Jersey economy,” Brigid Harrison, a Montclair State University professor of law and political science, said in an interview.
New Jersey tax receipts fell $254 million short of Christie’s fiscal 2012 budget forecast, David Rosen, the nonpartisan budget officer for the Legislature, said in a memo to lawmakers earlier this month.
The state’s unemployment rate jumped to a 35-year high of 9.8 percent in July. The governor has said his tax cut will help create jobs.
Christie, speaking yesterday at a town-hall meeting in Elmwood Park, didn’t mention the “comeback” or the state’s jobless rate. In recent weeks he’s replaced the “Jersey Comeback” banners at such events with one reading “Christie Middle-Class Reform Agenda.”
Christie told the crowd of about 300 people that he won’t abandon his call for the tax cut, which he said would make the state more affordable and competitive with neighboring states such as Pennsylvania with lower tax burdens.
“The money comes from you in the first place, so for us to say we don’t have enough money to let you keep more of your money means just one thing: It means that we believe we can spend your money better than you can,” he said.
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