Bloomberg News

New Jersey Credit Outlook Cut on Christie Revenue Targets

September 18, 2012

New Jersey Governor Chris Christie

New Jersey Governor Chris Christie, a first-term Republican, has traveled the state touting a “Jersey Comeback,” an economic-recovery plan that seeks a tax cut. Photographer: Daniel Acker/Bloomberg

New Jersey had its credit outlook revised to negative from stable by Standard & Poor’s, which said revenue assumptions in Governor Chris Christie’s economic comeback plan are optimistic.

S&P said in a statement today that it may lower the rating “should state revenue projections turn out to be optimistic, resulting in additional short-term budgetary maneuvering to close the gap, which would indicate continued fiscal pressures on the state,” The company affirmed the state’s general- obligation bond rating of AA-, the fourth-highest level.

Christie, a first-term Republican, has traveled the state touting a “Jersey Comeback,” a recovery plan that seeks a tax cut. Democrats who control the legislature didn’t include that in the state’s $31.7 billion budget for fiscal 2013, saying they wanted to see whether revenue would meet the governor’s targets.

A rating cut would be the second for New Jersey since Christie, 50, took office in January 2010. S&P lowered the state’s grade from AA in February 2011, citing growing pension and health-care obligations. Earlier this year, S&P said Christie’s budget for the fiscal year that began July 1 was structurally unbalanced because it was built on optimistic economic-growth projections.

‘Out of Step’

Andy Pratt, a spokesman for state Treasurer Andrew Sidamon- Eristoff, said in response to the outlook revision that “it is gratifying that all three agencies have now affirmed the ratings on New Jersey’s debt.”

“Investors will find S&P’s arguments to be out of step and its basis for revising New Jersey’s outlook unconvincing, particularly in the face of the continued growth in New Jersey’s economy and state revenues,” Pratt said in an e-mail.

A New Jersey general-obligation bond maturing in 2021 traded Sept. 10 with an average yield of 2.17 percent, 0.58 percentage point above an index of benchmark municipals with similar maturity, data compiled by Bloomberg show. That yield difference has increased from Jan. 4, when the bonds traded with an average yield of 2.24 percentage points, 0.51 percentage point above the index.

Second-Rosiest

Christie’s proposed fiscal 2013 budget counted on a 7.2 percent revenue gain compared with 2012, second only to a 7.7 percent jump projected by California Governor Jerry Brown, according to the New Jersey treasurer’s office.

New Jersey’s credit strengths include its diverse economic base, which is experiencing a “somewhat muted recovery,” and its high wealth and income, S&P credit analyst John Sugden said.

Weaknesses include “a trend of structurally unbalanced budgets that include only partial funding of pension obligations and the reliance on one-time revenues and debt restructurings to offset underfunding of expenditures and revenue shortfalls,” S&P said.

The negative outlook also reflects “growing expenditure pressures,” including pension funding, Medicaid and debt service, S&P said. For fiscal 2014, the state has already identified about $2.2 billion in budgetary gaps that would need to be closed, the rating company said.

Wait, See

Assemblyman Vincent Prieto, a Democrat from Secaucus who is chairman of his house’s budget committee, said S&P’s revised outlook supports his party’s delay on Christie’s tax cut.

“It’s what we’ve been saying -- that we want to take a wait-and-see approach,” Prieto said by telephone.

The matter will come up tomorrow at a budget hearing, Prieto said. Sidamon-Eristoff and David Rosen, the nonpartisan budget officer for the legislature, have been invited to testify.

New Jersey tax receipts fell $254 million short of Christie’s fiscal 2012 budget forecast, Rosen said in a memo to lawmakers earlier this month.

Rising pension costs and a slow recovery led all three of the major credit-rating companies to lower the state’s grade last year. New Jersey’s general-obligation debt is rated AA- by Fitch and Aa3 by Moody’s Investors Service, comparable to S&P.

New Jersey’s economy didn’t begin to recover until November 2010, more than a year after the U.S. and New York City, Federal Reserve Bank of New York President William C. Dudley said today in the text of remarks prepared for a speech in Florham Park, New Jersey.

Construction Woes

While New Jersey companies have had “moderate” job gains, led by professional and business services, education and health, and leisure and hospitality, the state continues to lose jobs in manufacturing and there has been “little recovery” in construction, Dudley said.

New Jersey’s unemployment rate jumped to a 35-year high of 9.8 percent in July. The governor has said his tax cut will help create jobs.

Speaking today at a town-hall meeting in Elmwood Park, Christie accused Democrats of going back on a promise to pass tax relief. The credits would average $770 annually per filer and would lift the economy by making the state more competitive with neighbors such as Pennsylvania, he said.

“They agreed to it and reneged,” Christie said. “They are making themselves a joke in the eyes of the public. One thing the public can pick out faster than anything else is a phony.’

To contact the reporter on this story: Elise Young in Trenton at eyoung30@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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