N.J. credit rating cut record ninth time as Moody's cites pension shortfall

By Samantha Marcus | NJ Advance Media for NJ.com
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on April 17, 2015

TRENTON — Moody's Investors Service has downgraded New Jersey's debt rating, dealing the Garden State its record ninth ratings cut since Gov. Chris Christie took office.

The ratings drop by one notch, from A1 to A2, on $32.2 billion worth of bonds underscores the state's "weak financial position and large structural imbalance, primarily related to continued pension contribution shortfalls," Moody's said in a statement Thursday.

The rating agency warned that future pension underfunding and ongoing structural deficits could drive further downgrades.

"We expect liquidity and structural balance to remain very weak through fiscal 2016," the agency said.

The downgrade comes amid Christie's renewed push for reforms to an underfunded public worker pension system and a proposed state budget that if approved by the state Legislature would pay in $1.3 billion — far below what recommended by actuaries.

"Moody's action today once again underscores the urgent need for structural reforms of our public employee pension and health benefits system," Treasury spokesman Joe Perone said in a statement.

The governor has proposed sweeping changes to retirement benefits, including freezing the current system and pushing workers onto a "cash balance" defined-benefit plan.

Moody's also imparted a negative outlook, citing a likelihood New Jersey's financial state will worsen in the meantime.

"Without meaningful structural changes to the state's budget, such as pension reform that dramatically improves pension affordability, the state's structural imbalance will continue to grow, and the state's rating will continue to fall," a Moody's credit analysts said.

Moody's last moved the state's rating from Aa3 to A1 in May, based on lagging economic performance and after revenue shortfalls left a gaping hole in the state budget. Standard & Poor's in September lowered its rating in September from A+ to A, a grade on par with Moody's A2 designation.

Credit downgrades make it more expensive for the state to borrow money to pay for things like road improvements and school construction.

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