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Pension ruling bad news for N.J. credit, Moody's says

Friday, February 27, 2015   (0 Comments)
Share | 02/27/15

A judge's ruling this week that public worker pension contributions are contractually protected will constrict the state's ability to balance its budget in the future, a Wall Street rating agency said today. The flexibility of the state's pension payment has been "a tool essential" to balancing the budget, Moody's Investors Service said. Putting limitations on that amounts to a "credit negative." "Going forward, making the full pension contribution would incrementally improve the pension funding position, but would significantly increase budget pressure by reducing the state's ability to fund other programs and potentially challenge the state's liquidity," Moody's said.

Instead of pumping in extra money, Christie gutted $2.4 billion from pension payments in the fiscal years ending last June and beginning last July, a maneuver that triggered rating agencies to downgrade the state's debt rating and unions to ask the court to force him to pay the full amount. A lawyer for the state argued Christie didn't have to restore the payment because the 2011 law is unconstitutional. Jacobson sided with the unions and ordered the governor to work with Democrat-led Legislature to restore the funding.

"While it remains unclear whether the payment will be increased in fiscal 2015, a $1.6 billion obligation would comprise nearly 15 percent of the unspent budget," Moody's said. A credit negative assessment doesn't suggest a rating or outlook change -- which could affect New Jersey's interest rates -- is imminent, but rather assesses the impact of a single event, Moody's said.



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