N.J. Placed on CreditWatch Negative by S&P Over Budget

New Jersey may face another credit downgrade because elected leaders can’t agree on a solution to balance the state’s budget, Standard & Poor’s said.

The company, which cut the state’s rating on April 9 to A+, the fifth-highest level of investment grade, placed the state on CreditWatch with negative implications. Moody’s Investors Service and Fitch Ratings give the state a negative outlook.

The decision was based on “a large and growing structural budget imbalance, increased reliance on one-time measures, which are becoming less conventional” and “lack of consensus among elected leaders on how to return to structural balance,” analysts led by John Sugden said in a statement.

New Jersey has been downgraded six times under Governor Chris Christie, a 51-year-old Republican, tying the record set by Democrat Jim McGreevey.

Christie last month reversed course on his pledge to raise pension payments this fiscal year and next, after revenue estimates fell short. The pension deficit, now $38 billion, will top $40 billion by fiscal 2016, state Treasurer Andrew Sidamon-Eristoff told lawmakers in Trenton on May 21.

Investors demand 0.33 percentage point of extra yield to buy 10-year New Jersey securities compared with benchmark munis of similar maturity, down from 0.45 percentage point at the start of the year, data compiled by Bloomberg show.

Riskier Securities

Demand for debt from lower-rated states and localities has grown as investors seek riskier securities with yields on top-rated 10-year munis at a one-year low.

A lower rating is possible in 60 to 90 days, depending on budget negotiations as the state faces a July 1 deadline for the fiscal 2015 spending plan, S&P said.

Christie needs cooperation from the Democratic-led Assembly and Senate for a round of changes to employee compensation to further those he enacted in 2010, said Joseph Perone, a spokesman for the state treasury.

“S&P’s announcement today reinforces the governor’s continued call for the legislature to join him in enacting meaningful pension and health benefit reforms,” Perone said by e-mail.

(Corrects starting in headline to show that the state’s rating was put on CreditWatch negative, in a story published June 2.)
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