New Jersey is facing pension issues and credit downgrades. S&P has issued a new report looking at pension plans across the country. Managing Director of Public Finance Ratings for S&P Robin Prunty told NJTV News Managing Editor Mike Schneider that the Garden State is not at the bottom of the list, but it is lower than average.
“This year we observed across all 50 states the funded ratio did decline again to just under 71 percent. So New Jersey is below that average funded ratio at about 64.5 percent. So not in the bottom five that we have highlighted in the report, but it is a lower than average funded ratio,” she said.
Using one-time mechanisms to balance the budget can lower a state’s credit rating. “I think many states employ one-time resources, particularly during recessionary periods when revenues are declining significantly and cost pressures are escalating for social services or pensions, however I think what differentiates New Jersey during this economic recovery is that they have continued to employ non-recurring measures to balance their budget despite the fact that we’re in really the fifth year of revenue recovery,” Prunty said.
S&P put New Jersey on credit watch. Part of that decision, according to Prunty, was the risk associated with the reduced pension payment in the form of legal action and the fact that the state has a relatively low reserve.
“I think one of the challenges not just for New Jersey but for many states is that when they have a period of revenue decline that occurs in April — and personal income tax can be very volatile and a lot of times that volatility emerges in April — it gives any state, New Jersey included, very little time to react because their fiscal year ends June 30. So if you have reserves, you have some margin of flexibility, if you have other contingencies in place to manage that. But if you don’t, you have very little time to react,” said Prunty.
New York received a positive rating. Prunty attributes that to New York’s historically strong funded pension system. “I think the other issue that factors into New York’s outlook is the last couple of years they have made significant progress on structural budget alignment in terms of not only matching recurring revenues and expenditures but also setting aside money for reserves and pre-paying certain expenses,” she said. “So we’ve seen a very significant focus on structural budget balance in New York.”