The $34.8 billion 2017 fiscal budget proposed by New Jersey Gov. Chris Christie would weaken the state's credit position and increase the chances of future bond downgrades, according to Municipal Market Analytics.
MMA partner Matt Fabian noted in the Feb. 22
"MMA expects that the state's bonds will underperform the market as these issues are debated," he wrote. "The revenue interaction between the state and local governments means that the price impact is likely to affect New Jersey government credits more generally, particularly at the lower end of the credit spectrum."
Christie said during his Feb. 16 budget address that 95% of the budget is geared toward pensions, health benefits and debt service with only 1% comprised of "one-shot revenues." Fabian notes that the unfunded liability for pensions and other post-employment benefits is cited at "a hefty" $144 billion, which is more than four times annual revenues.
"The amount required to fund these liabilities leaves little money to invest in other budget areas, such as infrastructure and education," said Fabian. "MMA believes that absent a rethinking of the tax scheme in New Jersey the breadth of the sales tax, an increase in the gas tax, reducing reliance on the property tax for local funding—the state will continue to struggle to find funds to reverse the course of under-investment."
New Jersey has the second lowest credit ratings of the 50 U.S. states at A2 from Moody's Investors Service and A by Fitch Ratings, Standard & Poor's and Kroll Bond Rating Agency.
