NEW YORK--(BUSINESS WIRE)--The significant reduction in New Jersey's contributions to its pension systems that has been proposed by Governor Christie would be a negative rating factor, according to Fitch Ratings.
Fitch views this reversion to prior practices - cutting pension contributions as a way to balance the state's budget - as a form of deficit financing that is of particular credit concern at a time of economic recovery.
Fitch anticipated a stop-gap solution to close the budget gap for fiscal 2014 (now estimated at over $1 billion) that developed following disappointing April income tax results. The state has few options to respond to a shortfall of this magnitude with so little time left in the fiscal year. However, the proposal to cut the pension payment for fiscal 2015 by $1.57 billion as the primary means to close the identified $1.75 billion budget gap for next year is particularly troubling. This once again displays an inability to deliver a recurring solution to the state's budgetary imbalance and further delays action to align the state's revenues and expenditures.
Fitch also notes that the proposal to reduce the state's already inadequate contributions to its pension systems would make the state's long-term liability challenge even larger. The proposal retreats from the state's statutory commitment to phase in increases in its contributions to the system to the full actuarially required contribution. This in turn would result in additional increases to the state's already high unfunded pension liability.
Fitch currently rates New Jersey 'A+' with a Negative Rating Outlook. Additional information is available in Fitch's May 1 press release, 'Fitch Downgrades New Jersey GO and Appropriation Ratings; Outlook Negative', available at www.fitchratings.com.
Additional information is available on www.fitchratings.com.