New Jersey State Credit Rating a Casualty of Pension Funding
NOTE: Due to an editor's error, the link for the ASPPA Connect story titled "Congress’ Gaze on Retirement Issues in Upcoming Hearings" directed you here. To view the story on the congressional hearings, click HERE.
The Garden State is the latest state whose credit rating has suffered due to a pension funding shortfall. Credit agencies have downgraded their ratings of New Jersey debt due to the state’s worsening pension funding ratio.
CIO.com reports that Fitch has downgraded New Jersey’s municipal bonds from A+ to A. That may not sound bad, but it means that New Jersey’s bonds are among the lowest-rated in the United States.
Fitch says that the state’s outstanding debt obligations, which include contributions to the teachers’ pension and annuity fund and the New Jersey public employees’ retirement system, are “above average.” According to CIO.com, Fitch warns that the plan of Gov. Chris Christie’s (R) administration to suspend planned contributions to the state pension plans for fiscal years 2014 and 2015 would worsen the state’s funded ratios.
Standard & Poor’s has followed suit, dropping New Jersey’s rating from A+ to A, reports the Philadelphia Inquirer. In fact, the only state that Standard & Poor’s has given a lower rating is Illinois.
Christie doesn’t think much of the credit agencies’ downgrades of New Jersey’s rating. According to the Philadelphia Inquirer, at a Sept. 8 press briefing Christie said they are “being significantly overaggressive” and are doing so to compensate for the way they operated in 2008 and 2009.
Christie noted at an Aug. 1 press conference that his administration has put nearly $3 billion into the pension system and argues that it is a problem he inherited. “The fact is that promises were made by folks over the course of years in terms of benefits that are being paid out in the pension system that were never paid for, and you’re right, there were governors over a long period of time who paid nothing into the pension system over their entire terms,” he said.
Christie on Aug. 8 appointed a non-partisan commission to make recommendations regarding how to reform New Jersey’s public pension and health benefit systems. The group is charged with evaluating how New Jersey can create retirement and health care systems for public employees that are cost-effective, affordable and sustainable.
Fitch notes that New Jersey and its next door neighbor are in very different shape. While it has downgraded New Jersey’s debt, it upgraded New York to AA+ and says that New York has a “stable outlook.” Fitch attributes the sharp difference between the two states to different approaches to budgeting and fiscal management and budgeting; it also notes that New York State’s economy has performed better than New Jersey’s.