The fiscal cliff cost the United States its coveted triple-A bond rating. Now, even though it’s been a year and a half since Congress and the White House narrowly avoided plunging off the cliff, it’s costing New Jersey — and Gov. Chris Christie (R).
Christie, who has his eyes on a 2016 presidential bid, is certain to pitch Republican primary voters on his battles with Democratic interest groups like public employee unions. But his opponents might also highlight his financial stewardship: Since Christie took office in 2010, New Jersey’s general obligation debt has been downgraded five times.
Last month, Standard & Poor’s cut New Jersey’s credit rating, harshly criticizing Christie’s budgeting practices in the process. On Thursday, Fitch Ratings cut the state’s rating after the Christie administration disclosed an $807 million budget gap, just two months before the end of the fiscal year.
And Moody’s took note, too: The service warned balancing the state’s budget amid the revenue shortfall would be “a challenge.” Moody’s said the only likely solutions will be cuts to large year-end projects or tapping the state’s rainy day fund. Moody’s gave New Jersey’s credit rating a negative outlook in December.
Christie is in inauspicious territory: S&P and Fitch cut New Jersey’s rating from AA- to A+, taking it out of high-grade territory and into the upper medium category. Only California, rated A, and Illinois, rated A-, earn lower marks.
If his potential 2016 rivals use the downgrades to attack Christie’s fiscal management, he can lay part of the blame at Congress’s feet. In advance of the fiscal cliff, when George W. Bush-era tax cuts were set to expire in early 2013, wealthy Americans moved to avoid big tax penalties by taking capital gains and other income early.
That meant states around the country took in millions, if not billions, of dollars in the last fiscal year that was otherwise expected to show up this year. That is, people cashed in their stock in 2012 to pay lower rates on their 2013 taxes, rather than waiting until 2013 to pay higher rates on their 2014 taxes.
The problem came into focus last month, after the April 15 tax filing deadline. New Jersey said last week that it expects personal income tax revenue to come in $700 million below projections. State budget analysts said they dramatically underestimated the amount of income taxpayers would take in 2012 to avoid the higher tax rates a year later.
But part of the blame for the debt downgrades lies with the Christie administration and the legislators who voted for his budget. When budget analysts saw a shortfall coming last fall, they revised revenue projections downward by $250 million and cut costs by almost $700 million.
Still, they assumed a 5.3 percent year-over-year revenue growth rate, even though the shortfall suggested growth was nowhere near that strong. Slower economic growth in the first three quarters of the fiscal year cut revenue growth as well. And the fact that New Jersey reaped a $525 million tax revenue windfall last April, after those wealthy taxpayers moved up their income, should have been a big clue, state Sen. Paul Sarlo (D) told the Newark Star-Ledger, that less revenue would come in this year.
In its report downgrading New Jersey’s credit rating, Fitch cited the “scale and belatedness” of the $807 million shortfall — a gap that represents about 2.5 percent of the state’s total budget. Fitch also criticized New Jersey’s “overly optimistic revenue forecasts” and its “repeated reliance on one-time solutions to achieve budgetary balance.”
None of that looks good in a television advertisement broadcast by one of Christie’s rivals in an early primary state. Blaming Washington is popular among partisans on both sides of the aisle these days, for sure. But at least part of Christie’s budget hole is one he, and his budget analysts, dug themselves.