The New Jersey Supreme Court's ruling that allowed the state to renege on a pension funding promise is seen as “a double-edged sword” by ratings agencies.
The ruling June 9 provides short-term stability and gives the state some breathing room to get its financial house in order. But if legislators don't institute long-term solutions, the ruling will only end up worsening the state's situation, the agencies said.
The high court supported Gov. Chris Christie's withholding of payments to the New Jersey Pension Fund for the fiscal year ending June 30, saying the governor's backing out on a promise didn't violate the state constitution.
In a 5-2 vote, the court reversed a February ruling by state Superior Court Judge Mary Jacobson in Trenton, who said the governor had violated the law when he announced he would withhold $1.57 billion in promised payments to the $79.2 billion Trenton-based pension fund. Mr. Christie was sued by more than a dozen unions, seeking to restore the full payment.
If the Supreme Court had ruled against Mr. Christie, the state Legislature and the governor would have been hard-pressed to come up with the extra money quickly. Mr. Christie has repeatedly said he wouldn't raise taxes to help finance the pension fund.
“This decision is an important victory not only for our taxpayers who simply cannot afford these unsustainably high costs, but for limited, constitutional government that recognizes the proper role of the executive and legislative branches of government,” Mr. Christie said in a prepared statement.
“This is a disappointing decision for the teachers, firefighters, police officers and thousands of other public workers in New Jersey who have devoted their lives to serving others and don't ask for much in return, just the modest retirement promised to them,” said Bailey Childers, executive director of the National Public Pension Coalition, in a prepared statement. Coalition members include public-sector unions.
A statement from Standard & Poor's called the ruling a “double-edged sword. While it averts a potential liquidity crunch, it may do so at the expense of the state's liability position, which has steadily deteriorated over several years.”
The court's decision “provides the state with more time to address its pension liabilities, and potentially some additional leverage in negotiations with labor unions,” the S&P statement said. “However, if this window of time does not produce a solution to pension and other post-retirement liabilities, budget and credit pressure will accelerate and the state's rating could be vulnerable to further downgrade.”
New Jersey's general obligation debt is rated A with a stable outlook. The state's rating is the second worst among states tracked by Standard & Poor's. Only Illinois, with an A- rating and a negative outlook is worse.