Standard and Poors credit rating agency cut the state’s credit rating from AA to AA- today, citing the state’s health care and pension obligations for its action.
The rating is the agency’s fourth highest.
“The lower rating reflects our concern regarding the stresses from the state’s poorly funded pension system, substantial post-employment benefit obligations, and above-average debt levels,” S&P credit analyst Jeffrey Panger said in a statement, according to Bloomberg.
Last year, Moody’s dropped the state’s outlook to negative on its Aa2 rated bonds, also citing the growing pension and health obligations for the move.
“The assignment of a negative outlook reflects our belief that the state will be challenged to fund its structural budget gap, particularly in light of its failure to fund pension contributions in the 2010 and 2011 budgets and the expiration of federal stimulus funding in fiscal 2012 as well as our expectation that New Jersey’s economic recovery will be slow,” Moody’s said in its September ratings note.
The rating cut will likely have implications for the state going forward as a lower rating makes money more costly to borrow.
Wednesday morning, Gov. Chris Christie chastised the state legislature for failing to act on his proposed pension reforms.
However, Assembly Demcorats were quick to jump on the administration, blaming Christie for the ratings cuts.
Majority Leader Joe Cryan issued a statement saying the governor should stop blaming everyone else.
“The Assembly is not about to be lectured to by a governor whose budget policies have led to massive property tax hikes and a ballooning pension deficit,’’ Cryan said.
And Assembly Budget Chairman Lou Greenwald (D-Camden) called the S&P action unsurprising.
“Gov. Christie inflicted severe damage last year when he skipped the state’s pension payment. It was reckless and made the problem much worse,” Greenwald said in a release. “It was so short-sighted, in fact, that it wiped out all the benefits from the bipartisan pension reforms ushered into law early last year.”
But administration officials, including state Treasurer Andrew Sidamon-Eristoffdefended teh governor’s fiscal policies and blamed the actions of past administrations as well as inaction by the state legislature for the downgrade.
“The legislature must take a sober look at this report and its message, which could hardly be clearer,” said spokesman Michael Drewniak.
“Governor Christie’s pension and benefit reforms are necessary to manage the state’s pension liability and ensure long-term stability. Any further delay by the legislature is irresponsible and reckless and jeopardizes New Jersey’s fiscal health. The legislature must stop playing to the special interests, end the partisan politics and finally act on the promises they made last fall to pass comprehensive pension and benefit reform.”
Sidamon-Eristoff also jumped to the governor’s defense, saying in a release that “While New Jersey’s bonds remain sound and respected investments, this downgrade highlights the real danger of failing to act swiftly on critical pension, health benefit and fiscal reforms. The financial markets can send no clearer signal that the Legislature needs to follow the Governor’s lead and act on the pension and benefit reforms he proposed last September – legislation that is critical to reviving the economy and restoring the state’s fiscal integrity.”
According to the treasurer’s office, the report praised Governor Christie for championing pension reform.
S&P said that borrowing by past administrations has left the state with a debt burden that is “among the highest in the nation.” Per capita debt “is high,” S&P said, and amounts to $3,946 for every state resident, or nearly 8 percent of personal income and more than 7 percent of the state’s total output of goods and services.
“This shows why New Jersey has no choice but to create the kind of entrepreneurial economy that will generate the jobs and wealth needed to restore prosperity and reduce our dependence on debt,” the treasurer said. “An expanding economy would not only generate more revenue and ease the debt burden, but reduce the demand for unemployment assistance, Medicaid and other costly forms of state aid.”
The agency also lowered its ratings on various state agencies’ appropriation debt to A+ from AA-, and its ratings on the South Jersey Port Corp., which the state’s moral obligation pledge backs, to A- from A. The outlook is stable, according to S&P.
S&P stated that in part, the downgrade reflected the application of Standard & Poor’s newly adopted criteria on U.S. states, which more transparently incorporates debt, pension, and other postemployment liabilities, along with other rating factors.
New Jersey has about $2.6 billion of general obligation debt, $27.8 billion of appropriation-backed debt, and $2.5 billion of moral obligation debt outstanding.
According to the S&P report, the state’s strengths include its diverse economic base, its high wealth and income levels, and continued improvement in balancing resources to needs, while its shortcomings include itts unfunded pension liability, an above-average debt burden, and significant postemployment benefit obligations.
“The stable outlook reflects Standard & Poor’s view that New Jersey will continue to manage its structural budget imbalances proactively,” the agency stated.