Standard & Poor’s Cuts New Jersey’s Outlook From Stable To Negative

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Standard & Poor’s Ratings Services downgraded New Jersey’s rating from stable to negative today. The reasons given for lowering the rating include above-average debt burden and a trend of structurally unbalanced budgets for the fiscal year that began July 1.

Standard & Poor's Cuts New Jersey’s Outlook From Stable To Negative

The rating company also confirmed New Jersey’s general-obligation debt rating of double-A-minus, which is three steps below the coveted triple-A rating.

According to the credit analyst, John Sugden, the ratings highlight “the risk of revenue assumptions we view as optimistic, continued reliance on one-time measures to offset revenue shortfalls, and longer-term growing expenditure pressures.” The expenditure pressure mentioned here includes pension-funding increases, Medicaid funding, and debt service.

The credit rating company, explaining the rationale behind the revised outlook, said that New Jersey is already short of revenue by about $2.2 billion, of what it would need to be closed for fiscal year 2014, despite these figures not including the expected impact of increased enrollment in Medicaid, due to the Patient Protection and Affordable Care Act.

The downgrade was the latest financial setback for Gov. Chris Christie, who recently dropped the “New Jersey Comeback” slogan he had trumpeted since January.

However, Treasury spokesman Andy Pratt predicted that S&P’s rating would be unconvincing” to investors, because it is “out of step” with other ratings agencies. According to Pratt, the state’s economy has improved under Christie’s leadership. Moody’s Corporation (NYSE:MCO) affirmed New Jersey’s bond rating and stable outlook on Monday; Fitch was first to do so on Friday.

But New Jersey Democrats consider the ratings from S&P further proof that the Republican governor’s policies have failed. “We need to know where we stand,” said Assembly Budget Committee Chairman Vincent Prieto, a Hudson County Democrat. “The quicker we find out, the better we can adjust.”

“We want to be optimistic but we have to be realistic,” Prieto said. “This shows that the wait-and-see approach was the right thing to do. The assumptions of growth have not been there.”

S&P threatened to lower the ratings further within the next two years, if the state keeps on using short-term budgetary maneuvering to close the gap, which would widen the fiscal pressures.

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