S&P downgrades New Jersey’s debt rating, cites pensions and Christie’s budget

Already suffering under his administration's bridge scandal, New Jersey Gov. Chris Christie (R) just got another dose of bad news.

From the Star-Ledger:

Financial analysts at Standard & Poor’s downgraded New Jersey’s debt rating today, flagging Gov. Chris Christie’s budget practices as something that should give pause to investors.

While noting that the state economy has been growing steadily in recent years and has several bright spots that could help in the long run, the Wall Street rating house had tough words for the Republican governor, saying he has a habit of building budgets on rosy economic forecasts.

As a result, tax collections tend to lag by hundreds of millions of dollars every year, punching holes into the state budget and forcing Christie to use stopgap fixes, the analysts aid.

"Almost five years after the official start of the economic recovery, New Jersey continues to struggle with structural imbalance and stands in stark difference to many of its peers who registered sizeable budgetary surpluses in fiscal 2013," the S&P analysts wrote in a note to investors today.

S&P downgraded New Jersey’s debt by one notch, from AA- to A+. The agency previously downgraded the state’s bond rating in 2011. Each time it goes lower, it drives up the cost of borrowing for major projects such as schools and roads.

The analysis says of state's budgets: "By using bullish assumptions about revenue growth and one-time measures to close budget gaps, the state defers making long-term structural changes to better align revenues and expenditures, defers budgetary pressures to future years' budgets and increases its exposure to an eventual economic downturn."

It's not all bad news for Christie, though. The report says the state's economic picture is improving. It also says, though, that it still might struggle to pay unfunded pensions. The Christie administration says the report should be a wake-up call for Democrats who have resisted his pension reform overtures.

Christie spokesman Kevin Roberts said that "S&P’s action today actually underscores what the governor has been saying since January – the rising costs of pension, health benefits and debt service challenge our long-term fiscal health, and requires further reforms. In light of the negative effect of S&P’s action on New Jersey taxpayers, it’s time for the Legislature to come to terms with the reality of the problem and commit themselves to further reforms.”

Regardless of what is to blame, though, the downgrade is tailor-made for an attack ad, should Christie run for president in 2016. This is actually the second downgrade for the state's debt rating since Christie took over.

Aaron Blake covers national politics and writes regularly for The Fix.
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Aaron Blake · April 10, 2014