Fitch Ratings late Wednesday afternoon downgraded New Jersey’s general obligation bond rating to AA-minus from double A.
The move affects $31 billion in appropriation backed-debt and $2.6 billion in GO debt.
In addition, Fitch similarly downgraded the rating on the Garden State Preservation Trust’s open-space revenue bonds, while lowering to A-plus from AA-minus the ratings on New Jersey’s appropriation-backed debt and other related debt.
The agency revised all affected bonds to stable from negative.
Earlier this year, Standard & Poor’s and Moody’s Investors Service downgraded the state. Standard & Poor’s also rates New Jersey’s GO bonds AA-minus, while Moody’s Investors Service rates them Aa3.
Fitch said its GO downgrade “reflects the mounting budgetary pressure presented by significant and growing funding needs for the state’s unfunded pension and employee benefit liabilities, particularly in the context of a weak economic recovery, a high debt burden, limited financial flexibility, and persistent structural imbalance.”
Unfunded pension liabilities have dogged New Jersey. According to a debt overview report Janney Capital Markets released earlier this month, pension funding in the state is 56.4% as of June 2010, well below the 80% level many analysts consider adequate.
“It’s not so much the unfunded liability in and of itself, it’s the budgetary pressure presented by the liability," Ken Weinstein, a Fitch senior director for U.S. public finance, told The Bond Buyer in an interview. "Exacerbating that pressure is the fact that the state has not been making contributions to the pension plans in recent years and is not expected to fully fund its annually required contributions until fiscal 2018.”
Fitch added that New Jersey, despite its wealthy populace and broad, diverse economy, has performed weakly of late and is expected to lag the nation in recovery from the recession.
“New Jersey's a high-debt state,” Weinstein said.
While Fitch cited New Jersey’s recent efforts to contain pension costs, the agency added in its report: “Fitch believes that meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long term challenges, such as property tax relief, school funding, and infrastructure needs.”
A report last year issued by researchers at George Mason University’s Mercatus Center in Arlington, Va., said that lacking gains in investment income, the first of New Jersey’s pension funds for public workers could go broke by 2013.
