S&P Global Ratings cut its rating for New Jersey's general-obligation bonds Monday, marking the state's 10th credit downgrade under Republican Gov. Chris Christie.
Senior Director David Hitchcock of S&P Global said the downgrade stemmed from the state's rising pension liabilities along with an expected drop in revenue as part of a transportation-funding package signed in October by Mr. Christie.
The New York ratings, data and index firm lowered New Jersey's credit rating to "A-" from "A" and assigned a negative outlook.
"Just as the state is pushing off some of their pensions costs into later years, they are also pushing off some oftheir revenue loss into later years," Mr. Hitchcock said. "It's adding incremental pressure."
Credit ratings help determine the interest rates states pay when they sell bonds; a lower credit rating means higher borrowing costs.
A deal reached between Mr. Christie and the legislators increased New Jersey's gas tax by 23 cents, to 37.5 cents a gallon. The revenue will reduce the amount of money needed from the general fund to pay for road, transit and bridge work. The deal also will phase out the state estate tax and reduce the state sales tax at a total estimated cost of $1.4 billion by fiscal 2022.
The revenue losses triggered by those tax cuts will likely take effect just as New Jersey needs to increase its contributions to public pension costs, Mr. Hitchock said. New Jersey pegs its unfunded public-pension liability at $43.8 billion. S&P Global Ratings calculated the figure at $98 billion.
A spokesman for Mr. Christie referred requests for comment to the state Department of the Treasury. Willem Rijksen, a spokesman for the department, said the rating downgrade shows the need for changes to public pensions and benefits "which the governor repeatedly has said are necessary."
"Simple fact, our rating would be injured further if Governor Christie had not enacted reforms early in his Administration," Mr. Rijksen said in a statement.
In 2011, Mr. Christie and the Legislature agreed on a pension overhaul that increased public-worker benefit contributions. The governor promised to increase the state's annual payments to the retirement system but later scaled back those payments to avoid raising taxes.
New Jersey's credit rating has been downgraded 10 times by three different rating firms during Mr. Christie's tenure. S&P Global Ratings has lowered the state's rating four times since February 2011.
New Jersey has the second-lowest credit rating issued by S&P Globalin the U.S., after Illinois.
Illinois has a BBB credit rating with S&P Global and is also facing substantial pension pressure, said Senior Director John Sugden.
"These fixed costs are squeezing out the ability of these budgets to absorb fluctuations in revenues and increased spending for other areas, such as education and, really, the rest of the budget," Mr. Sugden said.
(END) Dow Jones Newswires
November 14, 2016 18:25 ET (23:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.