New Jersey is now in the bottom three of the fifty states, when it comes to credit ratings. ? New Jersey shares this dubious distinction with California and Illinois. ? Bloomberg reports:
New Jersey?s credit rating was cut one step to A+ by Standard & Poor?s, which cited one-time measures to plug budget deficits that will add to fiscal pressure.
The downgrade puts the state?s credit four levels below the top, and leaves it with?California?and?Illinois?in the single-A category, lower than 47 other states. The New York-based company gave New Jersey a stable outlook.
The state budget is seriously imbalanced. ? Government needs to cut spending, yet the crushing amount of debt questions whether that will be enough. ? Is New Jersey past the point of no return? ? In other words, is our state inevitably on the path toward bankruptcy?
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New Jersey?s credit rating has been cut in Wall Street?s first official reaction to the move by Governor Christie to scale back legally mandated payments to New Jersey?s pension fund, a move he made to balance the state budget.
Fitch Ratings announced Friday afternoon that it lowered the state?s credit rating one step to A, citing a ?repudiation? of the pledged pension payments.
The downgrade announcement also cited ?the absence of long-term, fiscally sustainable solutions? to close recent budget gaps, ?overly optimistic revenue forecasts? and a state economy that ?continues to lag that of the nation.?
The ratings action comes as public employee unions are challenging the pension payment reductions ? which total $2.4 billion over two fiscal years ? in state Superior Court. It also puts New Jersey?s credit rating in a tie with California?s, and above only Illinois among U.S. states.
The downgrade is the second this year from Fitch, which had already lowered the credit rating to A+ after the Christie administration announced in April that tax collections had fallen $807 million short of projections.
Two other major ratings agencies, Moody?s Investors Service and Standard & Poor?s, also lowered New Jersey?s credit rating around the same time.
The credit rating is an important factor in determining how cheap and easy it is to borrow money for capital projects such as schools and bridges that cannot be funded in one budget year.
The latest downgrade is also a blow for Christie, a Republican who has tried to make the case that his fiscal policies and reforms have rescued the state from years of mismanagement under Democratic leadership. And though the state?s unemployment rate has improved in recent months, the loss of roughly 5,000 jobs from the closure of two Atlantic City casinos earlier this week signals that more bad economic news could be coming.
Christie has been traveling in Mexico this week as part of a three-day trade mission.
New Jersey Department of Treasury spokesman Chris Santarelli said the latest downgrade from Fitch highlights Christie?s repeated calls this year for more public employee benefits reforms.
?New Jersey needs additional, long-term, fiscally sustainable solutions to address the state?s considerable debt obligations and significant unfunded retirement liabilities,? he said. ?We invite the Legislature to join the governor in taking responsible action to meet this paramount challenge to our long-term fiscal health.?
To close the budget shortfall earlier this year, Christie cut the state contribution into the pension system by $886 million for the fiscal year that ended on June 30. He also reduced the planned payment for the current fiscal from $2.25 billion to $681 million.
Both cuts signified a reversal from Christie?s earlier promise to increase state funding for the pension system, which covers the retirements of roughly 770,000 current and retired employees.
The fund is worth about $80 billion, but years of partial or skipped state contributions by Christie and other governors have left the fund an estimated $40 billion short of what is owed to retirees in the long term. Still, the fund has enough money to cover payments to retirees for several decades and has actually been increasing in value thanks to recent investment gains.
The pledge to increase pension payments over seven years was part of a series of reforms Christie enacted with Democratic legislative leaders in 2010 and 2011 that also included increasing the retirement age for employees and cutting most cost-of-living adjustments. Employee health insurance contributions were also increased.
Democratic lawmakers tried in late June to restore the pension funding by increasing taxes on the wealthy and corporations, but Christie exercised his veto power to block the tax hikes.
Public employee unions have challenged the pension payment cuts in Superior Court, with the most recent filing coming from the state earlier this week. Lawyers from the state Attorney General?s Office argued that Christie had the constitutional authority to reduce the pension payments even though he signed the law that mandated them.
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