Standard & Poor's
Simultaneously S&P downgraded the state's appropriation-backed debt to A-minus from A and its moral obligation debt to BBB from BBB-plus. The rating agency has a stable outlook on the ratings.
In explaining the downgrade, S&P analyst John Sugden pointed to the state's structurally unbalanced budgets that rely on one-time measures, putting additional pressure on future budgets. Noting that Gov. Chris Christie, a Republican, decided to delay pension funding to help balance the most recent budget, the analyst expressed concern over the lack of agreement among elected leaders as how to get to structural balance.
The downgrade "is a dramatic statement of a lack of confidence in how the state is managing its finances," said New Jersey Assembly Budget Committee chairman Gary Schaer, a Democrat. "Of greater concern is how it is going to cost the taxpayer more to borrow money."
Sugden also said the state had an above-average debt burden and significant postemployment benefit obligations. For strengths, Sugden noted that the state has a diverse economic base and high wealth and income.
Christie in May announced a decision to cut $884 million from the already approved funding for pensions in fiscal year 2014. He subsequently proposed a fiscal year 2015 budget with $1.57 billion less funding for pensions than he had agreed to in a 2011 pension agreement. This shortfall was in the approved appropriations act.
"In our view, the governor's decision to delay pension funding has significant negative implications for the state's liability profile," Sugden said.
While the current rating includes some further deterioration of the state's pension funded levels, if the state does not address the problem, the state's rating could be pushed lower more than two years from now, Sugden said.
S&P's downgrade follows Fitch's similar downgrade of the state's GO debt to A from A-plus on Friday. Like S&P, Fitch also downgraded the state's other forms of debt. However, Fitch kept a negative outlook on the state.
New Jersey is rated A1 with a negative outlook by Moody's Investors Service.
Moody's will probably follow the other two agencies' actions, Schaer said.
Schaer brought up several other concerns. He said he has heard that all the tolls for the state's Transportation Trust Fund have been earmarked. State Treasurer Andrew Sidamon-Eristoff has told him that he plans to seek to sell a bond in January to add money to the trust fund.
Corporate business tax receipts have recently been lower than expected, Schaer said. Since the governor has spent a great deal of effort trying to attract corporations to the state, this is disturbing, Schaer said.
Christopher Santarelli, deputy director of communications for the New Jersey Treasury, said, "Like Fitch, Standard & Poor's rating action calls on the state's elected leaders to take on the state's long-term pension and health liabilities that will continue to place additional pressure on future budgets. While Gov. Christie has been highlighting the issue and calling for bipartisan action to address these concerns since February, leaders in the legislature continue to deny the problem and balk at the idea of additional reform.
"New Jersey bonds are still strong investment-grade securities and highly coveted by municipal bond investors," Santarelli added.
Schaer said he was also concerned that the governor notified neither him nor, to his knowledge, Assembly Speaker Vincent Prieto, before S&P announced its downgrade of the state. Schaer said he learned of the S&P action from a Bond Buyer reporter.
