A major Wall Street credit-rating agency has once again warned investors to keep a close eye on New Jersey’s fiscal problems, a sign that the state is still struggling with significant budget issues even as Gov. Chris Christie has been downplaying those concerns while running for president. Moody’s Investors Service cited “extraordinary decisions and challenges” that New Jersey faces in 2016 with its Transportation Trust Fund and public-employee pension system in a notice issued to investors late last week. The report noted that the Transportation Trust Fund is set to run out of money on June 30. And it warned that a pending state Supreme Court case threatens to add billions more to the pension system’s $40 billion unfunded liability. The rating-agency’s lengthy message stood in contrast to the more optimistic portrayals Christie, a second-term Republican, has been offering over the last several months as he’s been seeking the GOP’s 2016 presidential nomination. In fact, in his State of the State address earlier this month he bragged about bringing “discipline back to our public finances” during his six years in office.
The Moody’s notice also underscored efforts by New Jersey lawmakers to address the state’s budget challenges while Christie has been devoting much of his time to the presidential contest. Those efforts include proposed constitutional amendments that lawmakers hope to put before voters in November that, if approved, would change how the state funds transportation projects and the pension system. New Jersey already has one of the worst debt grades among U.S. states; the rating agency didn’t lower that A2 debt grade any further in its notice. But it also chose to maintain the state’s “negative” credit outlook rather than bump it up to “stable.” No fix for the transportation fund has been put forward either by Christie or by Democrats who control the state Legislature, although more information could be coming in the annual state budget address the governor is scheduled to deliver on February 16. The current, soon-to-be-depleted transportation fund has paid for about $1.6 billion annually in road, bridge and rail improvements throughout the state over the last five years, while also drawing federal matching funds.
New Jersey is already the nation’s third-most indebted state, and Baye Larsen, a Moody’s senior analyst, predicted the solution to the transportation-funding dilemma would include “a mix of borrowing and pay-go financing that will influence the state’s future leverage position.“ State lawmakers, meanwhile, are advancing a measure that seeks to ask voters this fall to approve dedicating all revenue raised by state fuel taxes to the Transportation Trust Fund. The proposal wouldn’t solve the transportation-funding issue on its own, but if the fuel tax rates are increased later this year it would prevent future raids of those funds for other budget purposes. A response to the Moody’s notice issued last week by the Christie administration glossed over the transportation-funding issue altogether, choosing instead to focus entirely on the future of the pension system. But according to Moody’s, if the state loses a looming court challenge of retiree cost-of-living adjustments that were suspended as part of a broader 2011 reform effort, it could mean adding billions of dollars to system’s unfunded liability. That would put more pressure on the state budget to ramp up state contributions into the pension system.