TRENTON — Moody’s Investors Service downgraded New Jersey’s bond rating by one step today, citing the state’s slow economic recovery and mounting employee retirement costs. The downgrade comes less than three months after Standard & Poor’s took a similar action, ranking the state’s bond rating among the lowest in the nation. The state’s new bond rating of Aa3 from...
Gov. Chris Christie speaks to an audience attending his Reform Town Hall meeting in Toms River in this file photo.TRENTON — Moody’s Investors Service downgraded New Jersey’s bond rating by one step today, citing the state’s slow economic recovery and mounting employee retirement costs.
The downgrade comes less than three months after Standard & Poor’s took a similar action, ranking the state’s bond rating among the lowest in the nation.
The state’s new bond rating of Aa3 from Aa2 is the agency’s fourth highest; only California and Illinois have lower ratings.
Moody’s analysts wrote that the downgrade "reflects the state’s weakened financial position and the expectation that recovery will be unlikely in the medium-term due to rapidly rising fixed costs, relatively slow economic recovery and a lack of a specified plan to rebuild fund balances."
The state’s unfunded pension liability is $53.9 billion, and it has promised another $66.7 billion in medical benefits to current and future retirees though it has yet to set any money aside.
The fixed costs of debt, pension and retirement health benefits consumed 13 percent of the 2010 budget and could rise to 30 percent within eight years, according to Moody’s.
That will leave the state with "substantially less flexibility to manage discretionary expenditures," the analysts wrote.
Moody’s did keep its outlook for the state as "stable," citing rising revenues, decreased reliance on one-shot remedies and the state’s "proactive" attempts to curb pension and similar liabilities.
Trying to put the best face on bad news, Gov. Chris Christie’s spokesman Michael Drewniak said the governor appreciated that Moody’s noted his efforts at curtailing fixed costs and doing away with budget gimmicks.
"The negatives cited by Moody’s are legacy issues which this governor is working daily to fix to ensure the state is put on a sustainable fiscal path," Drewniak said.
But state Sen. Paul Sarlo (D-Bergen), chairman of the budget committee, said Christie’s tone and divisive tactics cast a negative light on the state that is hard for Wall Street to ignore.
"I think the administration needs to tone down the rhetoric," Sarlo said. "It has a chilling effect and spreads unnecessary fear."