NJ State Credit Ratings and the Bad Thing to Come

[Haskell_Hunter]

http://reason.com/blog/2016/11/22/can-you-spot-a-trend-in-new-jerseys-ten

 

 

 

 

Can You Spot a Trend in New Jersey’s 10 Credit Rating Downgrades Under Christie? Christie says he doesn't pay attention to credit ratings, but maybe he should have. They've been trying to tell him (and other states) something.

Eric Boehm|

Nov. 22, 2016 9:25 am

 

Anthony Behar/Sipa USA/Newscom

 

Since Gov. Chris Christie took office in 2010, New Jersey has seen its credit downgraded 10 times by the "big three" credit rating agencies.

 

The 10th downgrade took place last week, when S&P Global Ratings knocked the state's rating down another notch. Credit ratings are a rough way to judge the long-term fiscal soundness of a state's budget (only Illinois has a lower rating, according to S&P), but they mean more than that. As a practical matter, low credit ratings make it more expensive to borrow on bond markets and end up costing taxpayers more anytime the state needs to borrow.

 

Thanks to NJ.com for rounding up a history of the downgrades during Christie's two terms in Trenton. The paper notes that the 10 black marks against the state's credit rating is a record for a single governor.

See if you can spot a trend (emphasis mine) in the following:

1. February 2011 (S&P): "The lower rating reflects our concern regarding the stresses from the state's poorly funded pension system, substantial post-employment benefit obligations, and above-average debt levels."
2. April 2011 (Moody's Investors Service): "These rising costs have been exacerbated by the state's long-history of underfunding its pension contributions, and most recently, cutting all or nearly-all contributions in FY2009 through FY2011."
3. August 2011 (Fitch Ratings Inc.): "The downgrade…reflects the mounting budgetary pressure presented by significant and growing funding needs for the state's unfunded pension and employee benefit liabilities."
4. April 2014 (S&P): "Almost five years after the official start of the economic recovery, New Jersey continues to struggle with structural imbalance." (In a statement about the downgrade, Christie's spokesman said "the rising costs of pension, health benefits and debt service" were to blame for that imbalance.)
5. May 2014 (Fitch): "The downgrade…incorporates financial operations that have been challenged by overly optimistic revenue projections, a multitude of long-term spending pressures including significant unfunded pension and employee benefit obligations."
6. May 2014 (Moody's): "Structural budget imbalance exacerbated by rapidly growing pension and OPEB ["other post-employment benefits"] costs."
7. September 2014 (Fitch): "…the state relied upon the repudiation of its statutory contribution requirements to the pension systems to return to budgetary balance, exacerbating a key credit weakness."
8. September 2014 (S&P): "The downgrade reflects our view that New Jersey will face increased long-term pressures in managing its long-term liabilities."
9. April 2015 (Moody's): "The downgrade to A2 was driven by the lack of improvement in the state's weak financial position and large structural imbalance, primarily related to continued pension contribution shortfalls."
10. November 2016 (S&P): "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."

 

It's almost like the ratings agencies have been trying to tell New Jersey something.

 

"I don't pay a lot of attention to these guys," Christie said of the credit rating agencies in 2014 when asked about the eighth credit rating downgrade on the above list.

 

Seriously, though, the state's pension systems are a total mess. When Christie came into office in 2010, New Jersey was facing a $54 billion funding shortfall to pay for current and future retirees. He immediately set about tackling the problem—to his credit—and in 2011 the state passed a pension fund rescue plan that would have theoretically closed the funding gap within a few decades.

 

Since then, though, Christie's subsequent budgets have failed to meet the promises laid out in that 2011 plan, leading to credit rating downgrades and spiraling debt. Today, the state owes an estimated $135 billion in future pension costs.

 

Pensions are a problem almost everywhere, but few states are in as much trouble as New Jersey.

 

A recent report from S&P suggests that if all pension unfunded liabilities were divvied up between the country's whole population, every man, woman, and child in the United States would owe $800 to pay for public workers' retirements. That same report estimated that the per-person pension debt in the New Jersey is more than $10,600.

 

As the New York Post noted this week, New Jersey's $35 billion annual state budget is in no shape to fill the state's pension hole. Even after spending $1.9 billion on pensions this year (a record for the state), things are looking no better.

 

There may not be any way for New Jersey to save itself from this mess. Eventually, I suspect, the state will have to go to court and argue that it is unable to pay for the retirement promises made to its public workers. That's not going to be fun for anyone counting on a pension check from the state, but major cuts in benefits will not spare taxpayers from having to pay off a portion of the debt.

 

Other states can still avoid New Jersey's fate by undertaking reforms that move new workers into private retirement plans and by not shortchanging annual pension payments in order to spend money on other things.

 

[Batsto]

What was the state budget under Corzine? 31 Billion? Christie is a big spender with our money.

[GhostBear]

Maybe it's time to reform the state pension and get double and triple dippers out of it and make it somthing more inline with the private sector, well we can hope anyway.

[Batsto]

Maybe it's time to reform the state pension and get double and triple dippers out of it and make it somthing more inline with the private sector, well we can hope anyway.

I agree with you! One thing the DDs do is save towns, law enforcement, schools and etc. on some costs on benefits. If a town can save some cash, they will jump on it.

 

It's time to cut state government. I bet they can cut state spending by 10 percent in a heartbeat and 30 percent over a 3 to 5 year span. 30% of 34 Billion is a junk of cash.

Edited November 23, 2016 by Batsto

[Stevo]

In January 2013 Congress passed a bill giving NJ 60.4 Billion dollars to help people whose property's were destroyed by Sandy. HuricaneSandy 372. Instead of rushing to the aid of devastated Homeowners they spent the money on tourism-related TV ads. But not all of it went to TV. They put the Secretary of Housing and Urban Development in charge of the money.

 

So instead of helping homeowners fix their homes they spent the money to house Illegal's and the Lazy's.  

[NorthJerseyMike]

Maybe it's time to reform the state pension and get double and triple dippers out of it and make it somthing more inline with the private sector, well we can hope anyway.

The reality is that most of these double and triple dipping folks have been eliminated.  There aren't too many left to scapegoat.  Also, the public workers have made their concessions.  Many (including folks on this site and the other one) have already been required to make significantly more in payments toward pension contributions. On top of this, some public workers, like educators, have designed their family's lives around a paradigm/ promise from New Jersey -- work hard get a decent salary, get healthcare, and get a delayed compensation pension at retirement. These are not entitlements.  This is the deal that was legally made with these folks. And that is why NJ has some of the best schools in the country - and that is what defines our real estate value.   Now these folks have to pay for healthcare WITHOUT getting adjusted income, therefore they are paying for something that used to be free with existing monies and haven't been granted additional monies to pay for it.    It is no wonder why NJ ratings suck.  

 

I have family who work for Fitch.  Bottom line is that NJ will become a banana republic unless the state tighten its belt and pay back the money it borrowed from pension funds.  And I have also heard that the Fitch actuaries have stated that NJ actually has the money to pay it back, but it would require a few years of austerity.  The best solution for our state is to pay back the money it borrowed, stop hemorrhaging money on non essential services, protect NJ's strong infrastructure (Roads/Schools/Open Space) and grandfather all public workers into a system that was promised to them.  All NEW public workers should be tiered into a new structure.  These folks will know what they are getting into, design lives around the paradigm, and in twenty years, NJ will have fiscal homeostasis.... 

[Haskell_Hunter]

And I have also heard that the Fitch actuaries have stated that NJ actually has the money to pay it back, but it would require a few years of austerity.  The best solution for our state is to pay back the money it borrowed, stop hemorrhaging money on non essential services, protect NJ's strong infrastructure (Roads/Schools/Open Space) and grandfather all public workers into a system that was promised to them.  All NEW public workers should be tiered into a new structure.  These folks will know what they are getting into, design lives around the paradigm, and in twenty years, NJ will have fiscal homeostasis.... 

 

You are correct that the state needs some aggressive austerity, but there are ticking time bombs in the NJ economy that have pretty much doomed the future economic stability of the state.

 

The cost of living in NJ is very, very high.  This is due to all of the different kinds of taxes we have to pay.  Now we have the additional gas tax to pay.  When the children of NJ residents leave home, those children and the parents more often than not leave NJ.  This has created a negative population growth in the state; essentially the population is shrinking.  Additionally, businesses are leaving NJ.  Take a look at all of the available retail space, but more so look at all of the available office spaces in corporate parks.  Businesses are leaving because it is too expensive to operate in NJ.  With both people and businesses leaving NJ, that means tax revenues will be smaller every year.  This isn't something new, it's been happening for the past decade and a half.

 

NJ legislators are all idiots (most of them, I am generalizing, but you know the ones I'm talking about).  Many of the urban legislators have maintained their hold on power by doling out things to their cities, paid for by the middle class in the suburbs and rural areas of the state.  They cannot, for political reasons, advocate for austerity because it will be their constituents who lose the most.  They'll look like sellouts catering to the rich and corporate special interest.  They're in a lose-lose situation, and they have more incentive to watch NJ collapse than save it.  They'll just blame the mess on someone else, that's what they do.  So rather than proactively do the right thing and significantly cut spending, they'll throw the entire retirement system under the bus and have someone else force them to cut programs, throwing their hands up in protest saying it wasn't their fault.  Just look at what's happening in Detroit, it's disgusting.

 

I fully expect retirement to go unfunded and for the entire system to collapse.  I fully expect retired workers to have their promises broken, and to be short-changed.  And I fully expect people and businesses to continue to leave NJ and accelerate leaving in the next five to ten years.  I hope I am wrong on all of those points, but the NJ legislation has never made any kind of effort in the past 20-25 years to fix the problem.  It's only getting worse and with each year it becomes that much harder to fix.

[Stevo]

I know nothing about being a State Worker. The first time I ever got a pay check was when I went to work for Eastmont. I have been self employed my whole life. Now that you know my background listen to this.

 

I was always pissed when I would be driving down the road and see 10 DOPW guys standing next to a hole in the road and one guy in the hole shoveling. The others would be drinking Coffee or talking on their Cell Phones. Then the Teachers. Why do they need to have their Convention during the School year? Why not in the summer when they are out of work? Pissed again. It goes on and on. Do I really care if 75% of the people in NJ prefer Chocolate or Vanilla? NO! But someone got paid with our tax dollars to find out. NJ wastes more money on BS Government jobs then any other State even California. But even the double dippers cried when Christie took it from them. You have a trough. You fill the trough. Only so many heads can feed from the trough. Or it goes empty before you can fill it again. That's NJ. An empty trough.

 

For some reason I don't see those guys standing around drinking Coffee anymore. Either someone said something to them or they got sneakier lol.

[DV1]

The cost of living in NJ is very, very high.  This is due to all of the different kinds of taxes we have to pay.  Now we have the additional gas tax to pay.  

Yep, and that's part of the reason the pension benefit is where it is, it costs a lot to live here. However, it's not as high for most as you think. It was maybe a few years ago they calculated the "average" NJ state worker pension at $26,000.00, and as you said, the cost of living here is very high, so most aren't living high on the hog. If/when, the pension system goes into default, how do you think these people will be handled? I can make a pretty good guess they will be added to the roles of those who receive Government benefits via welfare, food stamps, or one of the many other programs we waste billions of dollars on. The problem with healthcare is cost rose dramatically, and quickly, and people...state workers and teachers...should be required to pay more, however, you can't ignore they gave up a lot in previous contracts to keep the benefits as they were. Then got laughed at by Christie as he basically said FU, I know we told you if you agree to this, you can keep your benefits as they are but I'm screwing you anyway. Did the same on his "pension" deal, that he never intended to keep his promise on. 

 

People I used to work with are now paying almost $1000.00 a month for health care, and they haven't gotten any raises for years via contract, or steps, which have all been frozen. Contributions to the pension system have increased as well. Public employees have done their part to fix the problem, now it's the politicians turn. It's a mess because of people like Christie and Corzine, and all those before them back to Whitman, yet everyone wants to blame the middle class public workers and punish them. The State should be forced to pay the bill they owe to the pension system and deal with the consequences of the problem they created, not escape their irresponsible, likely illegal behavior by blaming and punishing public employees. If those consequences mean severe belt-tightening, and that makes them uncomfortable, or unpopular, so be it. They have escaped any accountability on this issue and that has to change, or they will do it again if and when this current mess is corrected. That's one thing I know for sure; if you allow people who have behaved irresponsibly, or criminally, to escape being held accountable, and pass the blame and consequences onto someone else, they will do it again, and again, until they are made to pay a price for what they have done. You can count on that. 

Edited November 23, 2016 by DV1

[Haskell_Hunter]

Don't count on the politicians to fix it.  They will throw the retirees under the bus and allow the pension system to go bankrupt.  They'd rather take care of the inner city mother with five potential new Democrat voters than hold onto a pair of elderly voters who will probably die before the next election.  And, yes, this is the way they think.  They will turn us on ourselves to preserve their gravy train.

[Batsto]

When Christie Todd Whitman was governor I was at town hall meeting when she said she was going to use pension funds for new initiatives. I sat there and thought of a farmer eating his seeds in the winter because of poor crops at harvest and next year you starve to death. She lied and stole other folks seed money and all governors followed the same shell game. Now we pay!

[stratocaster]

The reality is that most of these double and triple dipping folks have been eliminated.  There aren't too many left to scapegoat.  Also, the public workers have made their concessions.  Many (including folks on this site and the other one) have already been required to make significantly more in payments toward pension contributions. On top of this, some public workers, like educators, have designed their family's lives around a paradigm/ promise from New Jersey -- work hard get a decent salary, get healthcare, and get a delayed compensation pension at retirement. These are not entitlements.  This is the deal that was legally made with these folks. And that is why NJ has some of the best schools in the country - and that is what defines our real estate value.   Now these folks have to pay for healthcare WITHOUT getting adjusted income, therefore they are paying for something that used to be free with existing monies and haven't been granted additional monies to pay for it.    It is no wonder why NJ ratings suck.  

 

I have family who work for Fitch.  Bottom line is that NJ will become a banana republic unless the state tighten its belt and pay back the money it borrowed from pension funds.  And I have also heard that the Fitch actuaries have stated that NJ actually has the money to pay it back, but it would require a few years of austerity.  The best solution for our state is to pay back the money it borrowed, stop hemorrhaging money on non essential services, protect NJ's strong infrastructure (Roads/Schools/Open Space) and grandfather all public workers into a system that was promised to them.  All NEW public workers should be tiered into a new structure.  These folks will know what they are getting into, design lives around the paradigm, and in twenty years, NJ will have fiscal homeostasis.... 

Taxes are the only funding mechanism for the budgets, whether they be schools, municipal, county etc..The DD should have the money paid to them clawed back with interest.  The deals that were made were made in a different time under different circumstances that can't be sustained on the backs of private sector workers any more.  Incomes have not kept up with the increase in taxes and fees and the spending never stops.  If you need evidence of this, just look at Europe and Detroit, it can't be sustained.  Either deal with the temporary pain now or deal with the forced pain of a restructuring where you get pennies on the dollar like Detroit and soon Illinois.  The private sector has had to deal with this since the 80's and the downsizings that started then which forced them into 401k's. They were promised a lot too but had to deal with reality.