New Jersey had the outlook on $31.6 billion in bonds lowered to negative by Moody’s Investors Service because of underfunded pensions, budget gaps and projections of a slow economic recovery.
The downgrade reflects New Jersey’s failure to fund pension contributions in its 2010 and 2011 budgets and the expiration of federal stimulus funding in fiscal 2012, Moody’s said in a news release.
Michael Drewniak, a spokesman for Gov. Chris Christie, and state Treasury Department spokesman Andrew Pratt didn’t immediately respond to requests for comment.
“While the governor has broad powers to reduce expenditures, and has in fact implemented notable spending reductions in the 2011 budget, the state has a long history of underfunding the pension which has led to a low funding level, and offering generous retiree health-care benefits which puts above-average strain on the state’s budget,” Moody’s said.
A negative outlook means a reduction is possible in the state’s rating, now Aa2, the third-highest investment grade. A lower rating may boost New Jersey’s borrowing cost by leading investors to ask for higher interest rates to compensate for increased risk.
The assessment affected $2.6 billion of general-obligation debt and $29 billion of bonds secured by appropriations and the state’s so-called moral obligation pledge, Moody’s said.
New Jersey has $37.7 billion in gross tax-supported debt outstanding, according to Moody’s 2010 State Debt Medians report. Its $68.1 billion pension system, which included seven funds, was underfunded by $46 billion as of June 30, 2009, according to bond documents.