“When we’re thinking about New Jersey’s pension-funding position, New Jersey already has a large unfunded pension liability, and that is incorporated into the rating,” said Larsen.
Moody’s cited New Jersey’s pension problems when it lowered the state’s credit outlook from “stable” to “negative” in December, and “we’re anticipating declines in the funding ratios as the state ramps up to full funding by Fiscal Year 2018,” she said, because the state will not be making the full actuarially appropriate contribution until then.
“The lower state contributions are consistent with minimum legislative requirements,” Larsen acknowledged in her report. “However, the need to retroactively recalculate the amounts indicates that the state’s financial position is weaker than expected and that more typical budget-balancing solutions have already been exhausted. Additionally, while the changes provide budgetary relief through fiscal 2018, pension costs will be higher in later years than they would have been without the adjustment.”
Christie said during his Budget Speech that the state’s unfunded pension liability would be $54 billion in FY2018, the year that New Jersey would begin paying the full amount it owes on an annual basis based on actuarial calculations.
Marcy Block, senior director of Fitch Ratings, Inc., said yesterday that Fitch’s decision to lower New Jersey’s credit outlook from “stable” to “negative” 11 days ago also was based on the overall health of the state’s pension system. “On the pension side, it was more the overall burden we were looking at, rather than the impact of the pension changes on the current fiscal year,” Block said. “What is more concerning to us is how much that change in the formula will add to the accrued liability at the end of the day.”
Asked if she considered a 10 percent increase in the unfunded pension liability over 30 years to be significant, Block said emphatically, “I would say so!”