Term-limited Gov. Chris Christie's $35.5 billion fiscal 2018 budget is before the New Jersey legislature.

Long-term structural balance in New Jersey remains elusive thanks to continued deferral of full funding for future retirement obligations, said S&P Global Ratings.

"Short term, the proposed budget leaves the state in similar financial condition to where it started 2017, with slim, but adequate reserves, and some vulnerability to potential revenue shortfalls," S&P said in a commentary on Thursday.

"However, down the road, because New Jersey plans to only partially fund its actuarially determined contributions [ADC], the picture looks much worse."

New Jersey's general obligation bond rating is the lowest among states with the exception of Illinois. S&P rates New Jersey's general obligation bonds A-minus with a negative outlook. Moody's Investors Service assigns its A2 rating and negative outlook, while Fitch Ratings and Kroll Bond Rating Agency each assign an A rating and stable outlook.

Gov. Chris Christie's $35.5 billion fiscal 2018 budget proposal follows his multiyear plan to gradually ramp up to full funding of the state pension ADC over 10 years. New Jersey would  fund only 50% of the ADC in fiscal 2018, after funding 40% in fiscal 2017.

"Underfunding in any year ratchets up future state liabilities, in effect pushing back the tide, as New Jersey comes closer to the day when it will be left with no choice but to confront its very significant retirement obligations," said S&P. "The term-limited governor's successor will face tough funding decisions as early as fiscal 2019."

The planned 50% ADC contribution in fiscal 2018 in itself represents a record payment of $2.5 billion, boosted partly by the state's decision to lower the assumed rate of return to 7.65% from 7.90%.

"We calculate the budget proposal, if enacted, would leave New Jersey with a sizable structural budget gap of about 9% of proposed 2018 appropriations -- 2% attributable to various one-time budget items in fiscal 2018, and 7% representing pension funding below ADC--a similar structural budget gap to last year, despite the increased pension contribution in 2018," said S&P.

Trading spreads of late have reflected the state's troubles. NewOak Fundamental Credit reported that New Jersey spreads to the Municipal Market Data's top-rated benchmark look poised to test its high of 105 basis points set in September 2015.

More downgrades loom for the state, Municipal Market Analytics said in a recent commentary.

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