Moody’s Investors Service, citing massive cuts in fiscal 2012 state aid to affected New Jersey cities, placed six municipalities on review for possible downgrade.

Gov. Chris Christie used his veto power last week to reduce such aid to $10 million from $149 million.

Last week, Democrats failed to override the cuts by Christie, a Republican. But both Democrats and the administration are willing to negotiate restoring transitional aid funds for 21 cities.

“If the cuts do not get reversed by fiscal year-end, the choices left for these cities to fill the budget gaps are these: increase revenues, cut expenditures, one-time non-recurring revenue raises such as asset sales and/or borrow for operations,” Moody’s said.

All local governments in New Jersey operate under a 2% levy cap, which excludes debt service, health care and pension costs, but nonetheless is a real restraint on revenue-raising capacity through property taxes.

Moody’s cited Trenton, A3 with a negative outlook; Camden, Ba2 and stable; and Paterson, Baa1, as having reduced flexibility to manage the cuts, given property tax revenue limits, weak tax bases, low wealth indicators, and a sluggish economy. Also on review are East Orange (A2) , Passaic (A1), and Union (A3).

Moody’s rates New Jersey’s general obligation bonds Aa3. Standard & Poor’s and Fitch Ratings rate them AA-minus and AA, respectively.

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