From the Record:
New Jersey’s finances are still a mess, Standard & Poor’s said Tuesday, and the state’s weak credit outlook will not improve until officials make lasting reforms.
The Wall Street agency did not downgrade New Jersey’s “A” bond rating – already one of the lowest in the country. But Standard & Poor’s did revise New Jersey’s outlook from “stable” to “negative,” usually the first step before a downgrade.
Analysts pointed to a familiar problem, years in the making: a mountain of debt in the area of pensions and health-care packages for retirees.
John Sugden, an S&P analyst who studies New Jersey, said those costs continue to bring “significant long-term pressures” that could “worsen over the next year or two.”
Governor Christie has proposed a $34.8 billion state budget for the fiscal year that begins July. His plan would send $1.86 billion to the strained pension funds, or 40 percent of what actuaries say is needed to fully fund the retirement benefits public workers have earned. Next year, for his last budget, Christie plans to pay 50 percent of the total cost.
Those reduced payments mean that “the state’s underfunding of its pension is contributing to rapidly growing unfunded liabilities and reduced sustainability for its systems,” S&P said.
Fitch Ratings, Moody’s Investors Service and S&P have issued nine downgrades of New Jersey’s bond rating since Governor Christie took office in 2010, often citing the pension-funding predicament. But they all affirmed the state’s lower-than-average bond rating this year.
A spokesman for the state Treasury Department said S&P was the only major ratings agency to change its outlook to “negative” in recent days.
“This outlook change should serve as a wake-up call to Democrat legislators in Trenton: if they do not join the governor’s efforts to make public employee entitlements affordable for taxpayers, and if they continue to fight to enshrine these costs in the state constitution, it will be devastating to the budget and to the economy,” said Christie spokesman Brian Murray.
In a note to investors Tuesday, S&P called for “credible pension reform” and said New Jersey’s outlook would not improve to “stable” until it sees “a demonstrated significant and sustainable funding commitment to the state’s pensions that, at a minimum, reverses the trend of growing liabilities.”
The state pension funds face $40 billion in unfunded liabilities according to the terms of state law, but using newly adopted federal accounting standards, the tab grows to $80 billion. Pension plans managed by local governments are in better shape.
According to Fitch Ratings, the state faces more than $65 billion in unfunded liabilities for retiree health benefits.