Credit-rating agency cites uncertain outlook for employee pension payments, transportation fund
A major Wall Street credit-rating agency has once again warned investors to keep a close eye on New Jersey's fiscal problems, a sign that the state is still struggling with significant budget issues even as Gov. Chris Christie has been downplaying those concerns while running for president.
Moody's Investors Service cited "extraordinary decisions and challenges" that New Jersey faces in 2016 with its Transportation Trust Fund and public-employee pension system in a notice issued to investors late last week.
The report noted that the Transportation Trust Fund is set to run out of money on June 30.
And it warned that a pending state Supreme Court case threatens to add billions more to the pension system's $40 billion unfunded liability.
The rating-agency's lengthy message stood in contrast to the more optimistic portrayals Christie, a second-term Republican, has been offering over the last several months as he's been seeking the GOP's 2016 presidential nomination. In fact, in his State of the State address earlier this month he bragged about bringing "discipline back to our public finances" during his six years in office.
The Moody's notice also underscored efforts by New Jersey lawmakers to address the state's budget challenges while Christie has been devoting much of his time to the presidential contest. Those efforts include proposed constitutional amendments that lawmakers hope to put before voters in November that, if approved, would change how the state funds transportation projects and the pension system.
New Jersey already has one of the worst debt grades among U.S. states; the rating agency didn't lower that A2 debt grade any further in its notice. But it also chose to maintain the state's "negative" credit outlook rather than bump it up to "stable."
No fix for the transportation fund has been put forward either by Christie or by Democrats who control the state Legislature, although more information could be coming in the annual state budget address the governor is scheduled to deliver on February 16. The current, soon-to-be-depleted transportation fund has paid for about $1.6 billion annually in road, bridge and rail improvements throughout the state over the last five years, while also drawing federal matching funds.
New Jersey is already the nation's third-most indebted state, and Baye Larsen, a Moody's senior analyst, predicted the solution to the transportation-funding dilemma would include "a mix of borrowing and pay-go financing that will influence the state's future leverage position."
State lawmakers, meanwhile, are advancing a measure that seeks to ask voters this fall to approve dedicating all revenue raised by state fuel taxes to the Transportation Trust Fund. The proposal wouldn't solve the transportation-funding issue on its own, but if the fuel tax rates are increased later this year it would prevent future raids of those funds for other budget purposes.
A survey released yesterday by Fairleigh Dickinson University's PublicMind Poll found 49 percent of New Jersey residents support the proposed dedication of fuel-tax revenues for the trust fund, but another 49 percent said they either didn't know enough about the proposal or were against it.
"With the little attention being paid to this issue, an information campaign could move the needle either way," said Krista Jenkins, a FDU political science professor who is also the director of PublicMind Poll.
A response to the Moody's notice issued last week by the Christie administration glossed over the transportation-funding issue altogether, choosing instead to focus entirely on the future of the pension system.
But according to Moody's, if the state loses a looming court challenge of retiree cost-of-living adjustments that were suspended as part of a broader 2011 reform effort, it could mean adding billions of dollars to system's unfunded liability. That would put more pressure on the state budget to ramp up state contributions into the pension system.
"New Jersey faces outstanding pension litigation that, if decided against the state, would meaningfully worsen its pension liabilities and negatively affect its credit profile," Larsen said.
State court officials yesterday said there's no date yet for oral arguments in the pending case.
The Moody's report also mentioned a series of new employee benefit cuts that Christie has called for, including freezing the current pension system and forcing employees to accept less-generous health coverage. Right now, those costs account for nearly 25 percent of total state spending, and the changes could lower that amount to 17 percent, Moody's said.
But the notice also cited a "complex political landscape" while pointing out Christie's proposals have yet to gain any support in the Legislature, where lawmakers remain unhappy over the governor's decision to walk away from other components of the 2011 reform effort, including his promise to ramp up state contributions into the pension system over a seven-year period.
The Moody's notice also referred to another proposed constitutional amendment, which Democratic legislative leaders are hoping to put before voters this fall, that would create a new schedule for the state to reach the full pension contributions that are calculated by actuaries.
Under the proposed ballot question, the state would reach full funding by the 2022 fiscal year. It would also require the state to make pension payments on a quarterly basis throughout the fiscal year instead of in a lump sum at the end of the fiscal year, which is the current practice.
The larger payments would "gradually improve the pension fund's aggregate funding position," Moody's said. But it also warned the larger payments called for in the proposed ballot question could "challenge the state's liquidity" once they come due.
The PublicMind Poll also gauged opinions on the proposed pension-funding amendment, with 59 percent saying they approve of the quarterly payment plan.
But a statement issued in response to the Moody's notice by acting state Treasurer Ford Scudder only focused on the section that touched on changing employee benefits.
"If improving the State's financial position is a true priority of the Legislature, then it is time for lawmakers to negotiate with the Governor again on additional, meaningful benefits reform," Scudder said.