When S&P Global Ratings, a major Wall Street credit-rating agency, announced it was lowering New Jersey’s debt grade by one step last week, it marked the 10th downgrade announcement for the state since Gov. Chris Christie took office in early 2010.
The ratings cut also set a record for the most to occur during the tenure of one governor in New Jersey.
But the downgrade notice that was sent out to investors by S&P last week also hit on several themes that have largely been repeated since Christie’s ratings streak began back in February 2011. And a look back at the 10 downgrade notices shows New Jersey has made little progress addressing its steep fiscal challenges despite Christie’s criticism of the budget policies of his Democratic predecessors.
Structural budget problems, significant state debt, and a huge unfunded pension liability have remained key concerns listed in all of the downgrade notices that have been sent out over the years, not only by S&P, but also by Fitch Ratings and Moody’s Investors Service. The Big 3 rating agencies have also knocked the state during Christie’s tenure for relying heavily on one-shot revenue fixes and for an economic recovery that has lagged other states’.
To be sure, the first round of downgrade announcements issued in 2011 was in many ways a critique of the fiscal policies enacted during the terms of prior governors who served before Christie took office in early 2010. Most of the state’s $43 billion of debt was also charged before Christie’s tenure began.
Still, five of the 10 downgrade announcements came in 2014 alone, after Christie won reelection to a second term. They followed his decision to abandon a pension-contribution ramp-up schedule that was a key part of his own signature pension-reform legislation.
The latest downgrade from S&P also highlighted a deal that Christie made with lawmakers just last month that will see the state phase in an estimated $1.4 billion in tax cuts just as scheduled pension contributions are expected to rise.
In the end, the rating cuts have resulted in New Jersey’s S&P debt grade dropping by four steps, from an “AA” rating when Christie took office to an “A-” rating today. Though still an investment-grade rating, New Jersey now has the second-lowest debt grade among states, behind only Illinois. Meanwhile, Fitch and Moody’s have both lowered the state’s debt grade by three steps since 2011, leaving the Moody’s rating at A2, and Fitch’s at A.
Here’s a list of all 10 downgrade notices that have been issued by the rating agencies during Christie’s tenure, along with some comments from their analyses.
1. S&P – February 9, 2011
“… stresses from the state’s poorly funded pension system …”
2. Moody’s – April 27, 2011
“… the state’s long history of underfunding its pension contributions, and most recently, cutting all or nearly all contributions …”
3. Fitch – August 17, 2011
“… meeting the requisite increases in pension contributions will be challenging and is likely to conflict with other long-term challenges, such as property tax relief, school funding, and infrastructure needs.”
4. S&P – April 9, 2014
“New Jersey continues to struggle with structural imbalance and stands in stark difference to many of its peers.”
5. Fitch – May 1, 2014
“The state relies on one-time measures to achieve budgetary balance, including in the current fiscal 2014, even though full funding of annual pension contributions remains several years off…”
6. Moody’s – May 13, 2014
“High and rapidly-growing fixed costs have pressured the budget and limited the state’s flexibility to make structural changes that would improve long-term budget balance.”
7. Fitch – September 5, 2014
“New Jersey’s economic performance continues to lag that of the nation and a multitude of long-term spending demands are expected to prolong the achievement of sound financial operations.”
8. S&P – September 10, 2014
“The downgrade reflects our view that New Jersey will face increased long-term pressures in managing its long-term liabilities and that the revenue and expenditure misalignment will grow based on reduced funding of the state’s unfunded actuarial accrued liability.”
9. Moody’s – April 16, 2015
“… lack of improvement in the state’s weak financial position and large structural imbalance, primarily related to continued pension contribution shortfalls …”
10. S&P – November 14, 2016
“Recent events have added incremental out-year budget pressure, in our opinion, to what is already a sizable structural budget imbalance driven primarily by pension underfunding”