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Bankruptcy isn’t option, but state can default

Tuesday, July 8, 2014   (0 Comments)
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Bankruptcy isn’t option, but state can default 7/7/2014

Governor Chris Christie has compared New Jersey to Detroit multiple times in the past year as he vetoed several tax hikes intended to pay for overdue pension payments in the state budget. “The fact is, what the 40-year-old state worker should be concerned about right now is getting reform because if they just put their heads in the sand, then we will have a Detroit-like problem in New Jersey, in Illinois, in California and lots of other states across the country,” Christie said. Detroit's problem, Christie has said, is not the failure of making pension payments — but making unrealistic promises of them in the first place.

And while federal bankruptcy law does not provide states with the ability to declare Chapter 9 bankruptcy — as Detroit did last year — that doesn't mean New Jersey is too big to fail. Patrick O'Keefe, director of economic research for CohnReznick in Roseland, said he believes New Jersey is “on a highway that if you stay on it and drive the current speed,” the inevitable destination is not Detroit, but perhaps more appropriately “default city.”


“There are exits along the way, but thus far we've chosen to ignore them,” O'Keefe said. That's evident in a Bloomberg report last week noting that a recent upgrade to California's credit rating by Moody's Investors Service had placed the state a level above New Jersey for the first time since 1977. According to Moody's, which issued a credit downgrade to the Garden State earlier this year, New Jersey is second only to Illinois for the worst credit rating in the country.     

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