The U.S. Supreme Court's February decision to not hear an appeal by New Jersey labor groups challenging Gov. Chris Christie's authority to cut pension payments is a credit positive for the state government because it retains an ability to annually determine contribution levels, according to Moody's Investors Service.
The denial kept intact a June 2015 New Jersey Supreme Court ruling stating that a section of Christie's 2011 pension reform law that called for ramp-up of the state's pension system over a seven-year period was not legally enforceable. The decision enabled the Republican governor to proceed with $1.57 billion in unfunded actuarial accrued liability pension payments he vetoed for the 2015 fiscal year.
"The high court's denial is credit positive for New Jersey because the state retains the ability to annually determine its pension contributions," said Moody's analyst Tom Aaron in a Match 11 report. "Additionally, the ruling allows the state to avoid a budget gap of approximately 5% of its revenues for the fiscal year ending June 30, 2016 that would have materialized if it had been ordered to contribute at a higher level than previously envisioned."
Aaron noted that despite New Jersey's benefit of near-term pension flexibility, the state faces pressure going forward with its pension contribution levels. The state's annual required contribution shortfall amounted to roughly 10% of the fiscal 2015 budget and 9% of the fiscal 2016 budget, which creates "a large source of structural imbalance, according to Aaron.
A Moody's survey of state pension obligators, which covered the 2014 fiscal year, showed New Jersey's $85 billion Moody's-adjusted net pension liability amounted to 162% of its revenues, the fourth highest among the 50 U.S. states.
Moody's rates New Jersey bonds at A2 with a negative outlook. The state has an A credit rating from Standard & Poor's, Fitch Ratings and Kroll Bond Rating Agency.