NEW YORK – New Jersey's credit rating has been downgraded again, with renewed warnings about the state's poorly managed budget and underfunded public pension system.
Moody's Investors Service announced Monday that it had cut the state's bond rating by one notch, from A2 to A3, nearly a month after Governor Christie unveiled his budget proposal for the coming fiscal year.
Moody's latest action was the 11th downgrade during the Christie Administration. The agency has now cut the state's general-obligation bond rating four times under Christie, while the other two major credit-rating houses, Fitch Ratings and S&P Global Ratings, have issued three and four cuts, respectively.
The downgrades have given New Jersey a reputation as one of the worst-managed states, and credit rating experts say the cost of borrowing money for major public projects has begun to increase. Illinois is the only state with a lower credit rating.
Those concerns are not new for the Wall Street analysts who study the Garden State’s finances. Mounting unfunded liabilities in the state's public pension system have caused alarm for years among financial experts. The state recently calculated the pension funds' unfunded liabilities at $49.1 billion, but under a more stringent set of accounting standards accepted as the industry norm, the unfunded liabilities exceed $100 billion.
The situation has been exacerbated with a tax-cutting deal put in place last year. Christie and lawmakers agreed to eliminate the estate tax and shave three-eighths of a penny from the sales tax at a time when the state is starved for money to pay its debts. The deals will cost the budget $1.1 billion by 2012 when the cuts are fully phased in, according to Moody's estimates.
Moody's noted that Christie has pumped more and more money every year into the ailing pension system but added that the state's planned contributions will rise steeply after he leaves office, without a sure revenue stream to cover the costs. Because lawmakers and governors have shorted or skipped pension payments for the past 20 years, the mountain of debt facing the retirement funds grows every year, even as Christie ramps up contributions.
in Economic News